How to buy and sell a house on loan

This below article was published in The Times of India Mumbai on 25th June 2012. Readers of this blog may find it interesting.

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Find out how you can dispose of a property for which you are still paying an EMI, or to purchase one that is mortgaged to a bank or a housing finance company
AMIT SHANBAUG

    When Sameer Khan purchased two properties in the western suburbs of Mumbai three years ago, the idea was to generate extra rental income for his family. “I had taken loans for both flats when they were under construction. Though the properties are nearly completed, it will take another six months to get the possession,” he says. However, with the steep increase in home loan interest rates, Khan is finding it difficult to service both the loans and plans to sell one property. “The profits generated from the sale of one house can be used to pay the loan for the other,” he says.
   
Financial insecurity is just one of the reasons a property owner may want to sell a house for which he is still paying the EMIs. A couple of years after buying the house, you may feel the need to upgrade to a bigger property. If you are moving to a different city for work, you may want to settle down there after disposing of the existing property.

    While these arguments are valid for a seller of a mortgaged property, it may also make sense to buy a mortgaged resale property rather than one that is under construction. The advantage of purchasing a resale property is that it may be at a better and established location and you will be dealing with an individual instead of a builder’s sales team. In the case of a resale property, you have ample time to examine the pros and cons of the deal before taking a decision. Another advantage with buying a resale property is that banks generally conduct due diligence for the house that they are going to finance.

    While the reasons for selling and buying a mortgaged property may vary, one common problem that most people face is: can you sell a mortgaged property at all? Do you need to settle the home loan first and then approach a buyer or can the buyer take over your loan? What if the buyer himself plans to take a loan to fund the purchase? Many property owners who have bought the house with money borrowed from a bank have grappled with these questions. To avoid confusion while finalising a deal, here’s how you can sell (or buy) a house against which a loan is outstanding.

Get the property documents in order

The main documents required to sell a residential property are the housing society share certificate and the sale/ purchase deed of the property. The sale deed confirms that the land is in the name of the seller and that he has the right to dispose it of. If the property has changed hands more than once, the buyer may also ask for a copy of the previous deeds, in order to confirm the authenticity of the deal and property.

    The buyer will also demand the copies of stamp duty and registered house documents. Since these papers will be mortgaged with the bank if you have taken a home loan, you can use a photocopy of the required documents to initiate a deal. Depending on the kind of property and ownership, some more documents, such as a no-objection certificate from the housing society and a documented consent in case of jointly owned property, may be required.

If a buyer pays with own funds

In this case, the procedure is pretty straightforward. The seller first needs to obtain a letter from the bank with which the property is mortgaged, stating that the bank agrees to relinquish the property documents after the full and final payment of the loan. The buyer will then be required to pay an amount equivalent to the outstanding loan to the seller’s housing loan account, after which the process of releasing the documents by the bank is initiated.

    Once the borrower pays off all the dues, he receives the ‘no due’ letter from the bank. The original documents kept with the bank as security are usually released over a period of 5-10 working days of receiving the money. Ramesh Bhojwani, a Mumbai-based financial expert, explains that the sale proceeds cannot be fully executed till the time you are servicing a housing loan. “You can’t sell a mortgaged house if the buyer insists on the documents required to apply for a loan because all the original papers are lying with the bank,” he points out.
    Are there any tax implications either for the buyer or seller if the amount is paid as a lump sum? Hiten Shah, associate director, tax and regulatory practice, Ernst & Young, explains, “The lumpsum payment made by the seller will not have any impact on his cost of acquisition. However, the interest paid on the loan can be claimed as deduction under income from house property and a deduction for principal repayment can be made under Section 80C of the Income Tax Act,” explains Shah.

If the buyer takes a home loan

In this case also, the seller will still be required to settle his home loan first. The buyer of the property will have to submit all his financial documents to the bank and once the bank is fully satisfied about his repayment capacity, he will be eligible for the new loan. Experts advise that it is better to take a housing loan from the same bank where the seller has mortgaged the property as the bank will just have to examine the buyer’s financial eligibility before furnishing the loan.

Tax implications

While selling or buying a mortgaged property is possible, selling it within a couple of years of buying it can pare down your actual profit by half. “The seller will incur short-term capital gains tax regardless of whether the sale proceeds are invested in a new property or not,” says Om Ahuja, CEO, residential services, Jones Lang LaSalle India.

    If you have taken a home loan on the property, you will also have to take into account the interest that you have already paid before calculating your actual gains. Under Section 80C of the Income Tax Act, the principal of the home loan can be claimed as tax deduction. However, if the property is sold within five years of buying, the tax deduction is reversed.

    If you have held the property for more than three years, the gains are treated as long-term capital gains and taxed at a lower rate. The taxman also gives you the option of using indexation to bring down your tax liability. This lowers the effective profit from the sale of the asset and, therefore, the tax liability.

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Gymnasium Etiquette

Oh my. That's what I was saying to myself at the gym the other day as I got on a treadmill and noticed the glistening puddles of sweat left behind from a previous exerciser. Sigh.

Anytime you smush groups of sweaty people together in small spaces, there are bound to be problems and, though there may not be rules posted around the gym for how to act, there are some unspoken rules that all of us should be familiar with, whether we're veteran exercisers or we're just starting out.

The Basics

While it's perfectly acceptable to sweat, grunt and make mean faces while working out, there are a few behaviors that aren't acceptable. Here are just a few rules for getting along with your fellow exercisers:

• Share. If you're doing multiple sets on a machine, it's common courtesy to let others work in during your rest periods. This may not always be practical, but offer to share whenever you can.

• Clean up After Yourself. My biggest pet peeve is someone who walks away from a machine, leaving a slimy pool of sweat behind. Thanks! Always bring a towel with you and wipe the machines down when you're finished. Most gyms offer wipes or sprays strategically located around the gym for this purpose.

• Leave no trace. My next biggest pet peeve is the person who leaves six million pounds on the leg press machine. I don't know, maybe I look stronger than I am. The point is, always put your weights back when you're finished.

• Don't hog the treadmill. Many gyms have time limits on cardio machines during busy hours. There's a reason for that, and you should obey it. And no, throwing your towel over the display doesn't fool me.

• Keep it down. Most gym-goers I know have seen That Guy. The one pumping away on the treadmill while screaming into a cell phone. Unless it's an emergency, save your chat-time for after your workouts.

• Cover it up. I respect the confidence that allows some people to walk around the locker room naked. Know what else I respect? Seeing you wearing a towel after your shower to keep the locker room a comfortable place for everyone.

Aside from practicing good manners at the gym, you also want to make sure your workouts are safe and effective. Use the following tips for navigating the confusing world of gym workouts.

How to Workout at the Gym

There are days when I cringe watching people workout. I see people flinging weights wildly, dropping heavy weights on the floor, hanging onto treadmills for dear life and just generally using bad form with their exercises. Here are a few tips for getting an effective workout without hurting yourself:

1. Use good form. Good form is different depending on what exercise you're doing but, in general, good form includes the following:

2. Don't swing your weights. Unless you're doing a sports specific workout, use slow and controlled movements. If you have to heave the weight up, it's too heavy.

3. Don't drop or throw the weights down. That's a great way to break a toe--yours or someone else's. If you're using a heavy weight, have a spotter nearby to help you.

4. Don't lock your joints. When you get to the end of a motion--like a squat--keep your joints soft to avoid hurting yourself.

5. Don't slump. Keep your abs engaged during all of your exercises and stand up straight to avoid injury and get the most out of your exercises.

·                     Let go of the rails. It's tempting to take your treadmill speed/incline up so high, you have to hold on for dear life. I'm not sure why that's tempting, but it apparently is since a lot of people do it. You'll get a better workout if you let your arms swing naturally. Unless you need the rails to keep your balance and stay safe, keep your speed and incline at a level where you can comfortably let go.

·                     Learn how to use the machines properly. I've seen people doing crunches on a leg press machine. If you don't know how a machine works, either look at the diagrams on the machine or ask someone to show you how it works. Most gym-goers are happy to help.

·                     Learn how to set up a good workout for your goals. Rather than just showing up at the gym and randomly picking machines, have a plan before you walk in the door. This might mean hiring a trainer or educating yourself about the basics of exercise.

·                     Learn how to monitor your intensity. Since I started training, I've seen more than a few people puke after working too hard on the cardio machines. Beginner's often aren't sure of how much they can handle and end up working too hard, exercising too soon after eating or exercising without having eaten at all, all of which can cause stomach problems. Educate yourself on how to monitor your intensity and the right way to begin a cardio program.

Being a newcomer to a health club is tough for anyone, even veteran exercisers, especially when you're not sure how things work. Things will typically go much more smoothly if you take the time to follow the rules, be a pleasant gym-goer and, most of all, learn how to set up a safe, effective program. You'll be much more more likely to keep showing up for your workouts and make some new friends with like-minded people.

Credits: http://exercise.about.com/cs/healthclubs/a/gymetiquette.htm