All about home loans for resale flats

[ecis2016.org] Those who are planning to purchase a house from the resale market, must be aware of the nitty-gritties involved in the home loan process, as it is different from the procedure followed in case of under-construction properties

Considering that home loans are currently priced below the 7% per annum level, buyers may find it lucrative to purchase a property through housing finance. Easy availability of housing stock in the resale market, also makes it quite convenient to buy a property where you can directly move in, without having to wait. However, getting a home loan for a property in the secondary market, also known as a resale purchase , is not as easy as in the case of under-construction properties, where the developers may already have tie-ups with banks, to offer loans.

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What is a resale property?

For the uninitiated, a resale flat is a ready-to-move-in property that one would buy from an individual seller. Resale basically means that the current owner was alloted this property by the builder of the project or another seller. While the process to get a home loan for a resale property is different, the tax implications on the purchase of such properties are different from the purchase of under-construction properties, too.

In case of resale properties, the buyer is mostly on his own, to evaluate banks and to find the best offer for himself. Banks also treat this segment slightly differently, when compared to under-construction properties. Hence, buyers must familiarise themselves with the home loan process for the purchase of resale homes.

Home loan eligibility criteria for resale flats

Two factors that determine how much loan you will get for the purchase of a resale home and how long you can take to repay it:

1. Borrower’s age.
2. Age of the property.

Age of the applicant

Anyone who is aged 18 and over, can apply for a home loan in India for any sort of property, resale homes included. Banks typically offer the home loan tenure till the working life of an individual. This means, irrespective of when in your life you take the loan, the loan’s tenure will end at the time of your retirement – i.e., 60 years of age. This is the general scenario. Nevertheless, depending on the credit score, repayment capacity, mortgage insurance and negotiating tactics of the borrower, financial institutions may allow the tenure to stretch even longer.

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Age of the property

In some markets in India, it may not be feasible to buy a new home. In the national capital of Delhi, for example, all real estate transactions happen in the secondary market, as space is not available for new developments. The same is true of Mumbai city. This makes the resale home finance segment as crucial for lenders, as the new supply segment. As a result, all leading banks offer home loans for the purchase of old homes. However, the age of the property does remain a factor, when banks assess your home loan application. They would typically not entertain a home loan request for a property that is not in good condition or dilapidated. A well-maintained property, even if it is over, 30-40 years old, has higher chances of getting a home loan, than a comparatively newer property that is badly maintained.

How much home loan can you get for resale flats?

If the bank feels that the property is worthy of a home loan, it would then assess it, to determine the loan amount that can be offered for the purchase. For this purpose, they would send a technical team to evaluate the property. Banks may offer up to 90% of the property’s cost, as estimated after the technical evaluation by its team, as the loan amount. However, much of this will also depend on your credit history, repayment capacity and age, location and market value of the property.

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This is an area that could often turn out to be problematic for the buyer. How so? Despite the age of the structure, properties in old and established areas of prime residential markets in the country, are priced much higher than new properties in the peripheries, because of its location. This leads to the seller often asking a high price, while the bank may offer much less as loan.

“One-BHK homes in Delhi’s Mayur Vihar Extension, for example, sell for as much as Rs 1 crore. If the buyer has to get a home loan for the purchase, he will have to arrange a higher amount for down-payment, as banks will never evaluate a 1BHK home to be worth that much. You would be lucky to get Rs 60 lakhs as loan for such a property,” says Sanoj Kumar, a Delhi-based real estate agent.

Consequently, in case of resale properties, buyers should be ready with much higher contribution from their own funds, in case the bank refuses to lend you the amount you are seeking. It would be ideal to arrange at least 30% of the property’s value from your own pocket. Unlike under-construction properties, the tenure could also be shorter.

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Important points to remember

Documents required for housing loan for resale flats

The borrower can apply for a home loan in case of old properties, only after an agreement to sell has been signed between the buyer and the seller. Based on the terms and conditions of the agreement, the bank may or may not approve your home loan application. Along with the duly filled application, the buyers will also have to submit all the documents that establishment the ownership of the property since its inception, in case the property has been held by various owners over time. If the owner is not the first allotee, the documents of the original and subsequent sales will be required, to get a resale home loan. So, the borrower will have to arrange the immediate title deed along with the chain documents, for the bank to approve of the loan application. In case the flat is part of a builder-owned housing society, the sale agreement has to be endorsed by the builder. The builder must also issue a no-objection certificate for the proposed sale.

GST on purchase of resale properties/ flats

The Goods and Services Tax (GST) is only applicable on under-construction properties. However, buyers do have to pay the GST on home loan applications, as financial institutions offer several ‘services’ as part of home loans. If you are taking a housing loan, the bank would charge GST on the processing fee, technical valuation fee and legal fee.

Tax benefits on home loan for resale flats

Rebates for the payment of home loan principal, as well as interest, are available to borrowers under Section 80C, Section 24 (B), Section 80EE and Section 80EEA of the Income Tax Act in India. All the tax benefits to buyers of under-construction properties, are also available to buyers of old properties. In both cases, your income slab, the loan amount and whether or not the house is your fist purchase, would determine the kind of benefits you could avail of, under various sections of the income tax laws.

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Which banks offer loans for resale/old property?

As mentioned above, the secondary market segment is also quite important for banks and hence, almost all leading banks in the country, including SBI, HDFC, ICICI Bank, Axis Bank, etc., offer homes loans for the purchase of resale properties. Also, there is no difference in the interest rates on loans for old properties, whatsoever.

Documents required for resale property home loan

ID proof

Buyers have to provide copies of their identification proof along with the home loan application. The documents that act as ID proof include:

• Voter’s ID
• Aadhaar card
• Driver’s license
• Passport

Address proof

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The buyer will have to provide the bank documents showing his current residence, even though it might only be a rented accommodation. Among the documents that can act as your address proof are:

• Aadhaar card
• Passport
• Driver’s license
• Electricity bill

Photographs

Multiple passport-size photos of the applicant are required during the home purchase process. Keep at least two of them handy to go with the home loan application.

Property documents

Among the property-related documents that you will need to submit along with your home loan application are:

• Immediate title deed
• Chain documents
• Copy of agreement of sale
• Copy of the sale deed
• Property tax payment receipts
• Nil-encumbrance certificates
• Copy of the approved building plan
• No-objection certificate from the builder

Income assessment documents

• Copy of PAN card
• Bank statements for the last six months
• Income tax returns for the last three years

Employment-related documents

• Copy of appointment letter
• Salary slips (for salaried employees)
• Proof of business income (for self-employed and business owners)

Second-hand flat buyers have the same rights as the original owners, rules SC

Home buyers who have purchased a flat from a primary buyer have the same rights as the original owners, the Supreme Court (SC) has ruled. In its order delivered on July 23, 2021, the top court said that builders cannot deny the second-hand flat buyer the rights of the original buyer – including the right to claim refund over project delays – since the rights of both are the same.

“It cannot be said that a subsequent purchaser, who steps into the shoes of an original allottee of a housing project in which the builder has not honoured its commitment to deliver the flat within a stipulated time, cannot expect any — even reasonable time — for the performance of the builder’s obligation. Such a conclusion would be arbitrary, given that there may be a large number — possibly thousands — of flat buyers waiting for their promised flats or residences; they surely would be entitled to all reliefs under the Consumer Protection Act,” a bench of Justices UU Lalit, Hemant Gupta and S Ravindra Bhat said.

The apex court made this observation while passing in order against Noida-based real estate firm Laureate Buildwell. The builder had moved the SC, challenging an order by the National Consumer Disputes Redressal Commission (NCDRC), which had directed the company to refund the money to the second-hand flat buyer, because of the delay in handing over the possession of the flat.

In its plea in the SC, the builder said it could not pay refund to the second-hand flat owner, since he was not the original allottee and that the purchase by him was made despite the knowledge that the project was getting delayed.

Passing its order against the builder, the three-judge SC bench said that buyers agree to buy a flat with a reasonable expectation that delivery of possession would be in accordance within the bounds of the delayed timeline that he knows of, at the time of purchase of the flat.

“In the event the purchaser claims a refund on an assessment that he too can (like the original allottee) no longer wait and face intolerable burdens, the equities would have to be moulded. It would no doubt be fair to assume that the purchaser knew about the delay. However, to attribute knowledge that such delay would continue indefinitely, based on a prior assumption, would not be justified,” it said.

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