When an individual is on the hunt for a good property at a cheap price, a property under auction may come across as a lucrative option. Properties which owners are unable to repay for after having taken a loan, are the ones that come up for auction conducted by banks. What makes these properties attractive for purchase, is their selling price, which is usually at a discount of 15-20% than comparable properties in the locality.
However, prospective buyers of such properties often face a dilemma about whether a loan is available for the purchase of such properties. Long story short, you can indeed avail of a home loan on a property on auction, albeit with some caveats.
Home loan for a property under auction
However, a bank may agree to give you a pre- approved loan if you have an existing relationship with it and have a stellar CIBIL score of 750 and above (out of 900) indicating the fact that you have maintained a good credit track record in the past and are financially responsible. It is common practice among lenders to ask for a higher down payment for an auctioned property. Thus, depending upon the lender you will have to cough up as 25-30% of the selling price of the property immediately after your bid is successful. Any failure to do so, will result in the cancellation of the bid. Further, while the selling price is what may have attracted you to this property, do bear in mind the additional costs that may be added to your home loan.
The key to buying a property under auction is to go through the bid document. This document contains important information such as legal title and unpaid dues of the previous owner, who has landed in the loan defaulter list of the bank. You will thus need to check whether there are any unpaid dues by way of maintenance fee that the previous owner owes to the housing society. Secondly, you need to check out the taxation aspect and find out from the concerned municipal authorities about the unpaid taxes.
Thirdly, if the utility services have been disconnected due to non-payment of dues, you will need to pay for re-connection. Lastly, you need to visit the property to check out the extant of repair or renovation work required to make the property livable again. The important thing to do is take all these additional costs into consideration and assess whether the final selling price is still below the prevailing market price for a similar property in the same locality.
Make an informed decision
If indeed, it is so, you may have a good deal at hand. However, it is important to bear in mind that the due diligence process where you need to comb through the legal titles of the property. It is recommended that you avail of the services of a legal professional to get the papers investigated thoroughly as the bank will not take any legal responsibility for a property under auction.
Once you are satisfied with the deal at hand and are convinced that the property in question is worth the effort, go ahead with the transaction. Here too, remember that the process of purchase of a property under auction does not stop at obtaining a sale certificate that is duly signed and stamped by the lender. You need to register the property in your name at the office the sub registrar. Lastly but not the least, you also need to ensure timely repayment of the loan to avoid landing up in the loan defaulter list.
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