Can a homeowner sell a house before paying off the Home Loan? Yes, this happens most of the time. Home Loans have extended tenures of up to 15-20 years, while the average period people live in their current home is less than 10 years. So when homeowners decide to sell their house, they usually have an ongoing Home Loan on the property. Before choosing a Home Loan transfer option, know some crucial information about what happens in such a situation.
Selling a House with an Outstanding Home Loan
A homeowner with a Home Loan is legally eligible to sell the concerned property. However, the owner must obtain a No Objection Certificate (NOC) from the current loan company before transferring. Under this arrangement, part of the sale goes directly to the lending institution, and the remaining amount goes to the current owner or seller. When a finance company receives a total loan consideration, they release the property’s original title deed that the borrower pledged with them at the time of loan disbursement.
Things to Check Before Buying or Selling a Mortgaged Property
An individual may agree to buy a mortgaged property if they get a better deal in price, location, or condition. However, the prospective buyer should carefully check the property’s original documents, mutation records, litigation, and encumbrance certificate to verify the current owner’s possession. On the other hand, the seller must evaluate relevant documents to verify the buyer’s capability to repay and check their source of funds to complete the purchase.
The buyer must pay the seller a booking amount, get the relevant documents, and apply for a Home Loan. The lending institution assesses the relevant documents to evaluate the customer’s repayment capacity before approval. After successfully registering the property, the buyer submits the property’s original documents to the lender and gets them back only after the Home Loan’s full repayment.
A homeowner with a property loan can sell it only under two conditions:
- They receive consideration from prospective buyers and pay off the bank dues. After getting original property documents from the loan company, they can sell the house to an aspiring buyer.
- They transfer the outstanding loan amount to the new buyer. The owners get what they have already paid and some extra amount as agreed with the buyer. So lending institutions conduct due diligence before approving a Home Loan transfer, such as checking the new buyer’s income and repayment capacity.
A homeowner can sell a property with a pending Home Loan. But clearing all outstanding dues is essential before taking the final step. After paying back the full amount, the owners can get their original property paper and the right to sell it in the market.
Consider Tax Liabilities
Besides property specifications, another important factor buyers should consider is tax liability. According to the Income Tax Act 1961, the tax liabilities to sell a property give rise to a capital gains tax for short or long-term gain.
The tax benefit gets mitigated if the sellers use the capital gains to purchase another property within a specific time from the sale date. So before putting a property up for sale, do calculate the tax liabilities.
If the seller does not utilise the amount within the last date to file returns, they must submit it to a particular bank account. They can use the amount later only to purchase a residential property or to construct a house.
Who Pays the Loan When the Owner Sells the Property?
The homeowner is responsible for paying the loan EMIs until they close on the day of the sale. The average time to accept an offer and close a house is 30-45 days. But buyers sometimes request a longer or shorter closing period, depending on their requirements.
Refer to the settlement statement to know who must pay the final loan at closing. Also known as the closing statement, this document answers all questions related to different expenses related to the transaction. If the owner owes a payment upon closing, they must pay it from the sale proceeds.
Selling a house before paying off its mortgage and Housing Loan rates is possible, depending on the situation. So before looking for a buyer, ensure you have an up-to-date mortgage payment and cover all the costs related to selling the house. Knowing the process will help make the best decision and avoid any problems. If in doubt, contacting the mortgage lender will help prevent legal complications during the transaction.