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Whether you can buy foreclosed property with bank loan?

 

 

There is some good news for Indians wanting to buy homes presently. Fellow Indian home-buyers are steadily returning  to the real estate market, for a number of reasons, from affordable property prices to cuts in the goods and services tax (GST) by the central government.

It is thus the perfect time to get acquainted with a lesser known but definitely more profitable way of buying a property. Instead of new launches, those that are very few in numbers currently owing to the slowdown, one can opt for a foreclosed property. Never heard of it? Let us enlighten you.

A foreclosure or foreclosed property is one in which a certified lender takes control of a property from its owner in order to get the money that is owed. In simple terms, if the owner is unable to pay the mortgage in a few months, his or her bank has the right to foreclose his/her home.

This has been done with an aim to provide a solid foundation for the banking sector that deals with innumerable Non Performing Assets (NPAs) frequently. The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act was brought into action to meet this very goal – of allowing banks to take possession of securities and sell them.

But for any hard working Indian citizen, the next big question is, do banks provide loans to buy foreclosed properties? Do Indians get loans on foreclosure? The short answer is yes.

The long answer is that many banks do insure mortgage loans to help any qualified buyer who has less cash or not so great credit image to purchase homes. Such a buyer can use this loan to buy any type of house, including foreclosed properties.

In the case of foreclosed properties, there is some extra work involved, which is good for the buyer in the long run. The bank that is loaning the buyer sees if the foreclosure meets safety standards and is liable. As most foreclosed properties are sold ‘as they are’, there may be repair work or fixes that need to be looked into.

Property Inspection – There will be a property inspection to ensure that the bank’s standards of giving out a loan are met. The steps may seem laborious but when you get a property at such competitive rates, the homework doesn’t matter in the end. The inspection will help estimate the home’s value and will also look for defects and safety issues, if any.

Do note that the bank’s interest rate will be comparatively higher from a regular home loan, and the buyer must work with a bank representative from the inspection to paperwork till the deal goes through. Again, we should see it as a thoroughly researched and water-tight procedure rather than tedious work.

While newly launched properties don’t need repairs till a few years later, the foreclosed property you choose to bid for and own will most definitely will. The most important thing a buyer can do is get in touch with professionals like civil engineers who can assess and repair damage from pests, mod and leaks right at the onset. A head-start in the repairs and fixes go a long way when you choose a foreclosed property for yourself.

Ignore heresy – Don’t let common gossip or heresy fool you. As a common citizen of India, you may have heard people say it is impossible to find your dream home through auction and bidding as it is the forte of only a few who are in the know. But all that is changing now. According to an article in Mint , online auctions or e-auctions are gaining popularity in India with thousands of good foreclosed properties up for sale through secure channels (like banks and agencies like JVD. All you have to do is go through the listed properties online, bid on a foreclosed property of your liking, submit your sealed bid along with a minimum reserve price amount (please gather your cash in advance) to the bank. As the bidding period ends, the bank conducts the auction and sells the property to the highest bidder, says the article. Owning a foreclosed property is that simple if only you persist.

Swift process – Finally, as is the norm, there is something known as an earnest deposit where banks make bidders submit 10-15 per cent of the reserve price of the foreclosed property. In the fortunate case that you win the bid, you have to deposit another 15 per cent of the reserve price of the property within two days. Next, the remaining amount must be paid within a month’s time. If you are buying this property using bank finance, you will have to be ready with a pre-approved loan. Foreclosed properties are attractive for exactly this reason – not only are they approximately 30% cheaper to buy than current market rates, the procedure is swifter than usual.

So, make a well informed decision, do your homework well and go for a foreclosed property fully prepared. It will turn out to be the best decision of your life!