How Can I sell a House with an Outstanding Home Loan?

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09:30 AM 07 Oct 2019

Selling a house can be a stressful process, but additionally, if it has an outstanding home loan the whole process may turn into a more challenging task. Sellers are often puzzled with a lot of doubts like how to sell a mortgaged property? Is the process of selling a house that is mortgaged the same as the normal ones? Will, an outstanding housing loan property reduces the chances of getting a good deal?

It's an obvious thing to say that marketing a loan-free property is way easier as compared to that of an outstanding home loan. However, many don’t notice that selling a house with an equity home loan needs a very totally different approach, Here we discuss some of the scenarios of selling a mortgaged property:

Important documents needed to sell a mortgaged property

When you still have an outstanding housing loan, since your original documents will be with the lending institution. Priorily, one need to make sure that they have all related photocopies of the original documents like:

  • Encumbrance certificate

  • The sale deed copy

  • Loan sanctioned documents

  • The mother deed copy

  • Property Tax receipts 

  • Society NOC

These will not only be useful for selling a house but will prove your ownership in case of foul play of the lenders. 

Tax implications to Consider Before Selling a House with an Outstanding Home Loan

Researchers suggest that selling a house sooner than one year ends up in higher tax implications, so it's best to avoid selling your property inside a brief span of your time if there is not any money crisis. Check below the elaborated conditions for a detailed understanding,

Selling a house before one year of Purchase

If one is selling a house within one year of buying it, they have to pay the Short-Term Capital Gains (STCG) tax on the profits they earn from the auctioning process. Based on your income, this percentage is capped from 10% to 37%. If one buys another house from the acquired money, then also you are not entitled to any tax deductions.

Selling a house after one year of Purchase

When you are selling a house after one year of purchase, then you need to pay the Long Term Capital Gains Tax (LTCG) on the profits you earn. Depending on your income, this percentage is stated as 0%, 10%, and 15%.  If you buy a house within a year from the acquired money, you can save up to 19.5% on the income tax deductions.

How to approach Prospective Buyers to buy a property with an Outstanding home Loans?

Before selling a house, you need to inform your buyer of the outstanding home loan even prior to negotiating a deal price. Based on the buyer paying capacity for your property, they can be approached in different ways like:

Buyer Decided to Pay with his own funds

It is the most simpler procedure, the seller can request the bank for outstanding housing loan certificate. The buyer instead of paying the home loan to the seller can directly transfer to the seller lending home loan account for a final loan settlement. Hence doing so, the seller acquires the original documents and they can continue with the usual procedure of transferring the ownership procedure and the final balance amount settlement procedure. As their no bank involved in this procedure, it's a quick process

Buyer Took Home Loan from Another Lender to Pay for the property

Getting the housing loan from the same seller lender may not be possible. For this, the seller first needs to approach his lender and ask for an outstanding housing loan certificate along with the list of the property documents that are been received by the seller at the time of the home loan. Once the seller handles all these to the buyer can submit them at his loan lending bank. If the buyer is eligible for the housing loan, and all the documents received by the seller are legal, then the buyer's bank realises only the outstanding home loan amount. 

This amount must be paid by the seller to the bank, then the seller’s bank will give the original documents. When the seller gives these original documents to the buyer, after successful submission of these documents by the buyer to his lender institution, he will receive the additional housing loan amount, which can be given to the seller at the final transfer of ownership from the seller to the buyer.

Buyer Applied for a House loan from the seller Lending Bank/Institution

Based on the type of property and the loan paying capability of the buyer. If a buyer wants to take a loan from the seller’s bank since the bank already holds the information on the property it will be quicker. All that takes is now, whether the buyer is eligible for taking a loan it all depends on the home loan paying capacity of the buyer. 

After a thorough check, all the three parties including the buyer, seller, and the lender will come into a tripartite agreement. As per this, the buyer is treated as the owner and the new home loan applicant for the property. After settling off the housing loan amount, the lending bank realises the residual amount to the buyer, which he can pay to the seller as a final payment. 

How Buyers Can Benefit From Mortgaged Properties?

Although buying a mortgaged property takes a lot of time and struggle, there a lot of advantages associated to take up the trouble, 

  • Properties with outstanding home loans are sold-out at a reduced price compared to the new or resale ones. 

  • Mortgaged properties that kept for sale are most likely will be less than 10 years. 

  • Home Loan procedure will be an easy one, as the lending banks ahs already dome the job

  • You may not be worried about the liability of the property, as before giving housing loan banks check for any illegal issue with the property.

Conclusion

For a seller, there may be many reasons to sell a house before even completing the home loan like financial insecurities or just want to upgrade to a new home. But, unless it's a necessary thing, its better to avoid the selling a house for the price appreciation in the next couple of years. Irrespective of seller’s reasons it's a profitable situation for buyers, as they are not needed to undergo the tactics of builder’s sales associates for an under-construction property. Instead, they can buy the new resale property at an affordable cost.

Know more such interesting news at PropertyAdviser.in, your one-stop destination for all real estate queries. We provide all the accurate market growth analysis and latest properties for sale in Hyderabad to help you make informed decisions.

               
                  How Can I Sell A House With An Outstanding Home Loan?               

By Govi