Here's how you can sell your house with a pending loan

A guide to handling loan transfers, navigating the paperwork, approvals, costs and timelines

- Sashind Ningthoukhongjam

It's not uncommon to find home buyers who want to sell their property before paying back the loan on it. Take the case of Aarav, who was looking to shift to a different city. Luckily, a certain Mr. and Ms. Raghavan were looking for an apartment in his neighborhood. It was a match made in heaven.

There was one problem, however. Aarav still had an ₹80 lakh loan pending on the house, and the Raghavans wanted to take a loan to buy it. But, would the bank allow Aarav to transfer his pending loan to the Raghavans?

That's when they reached out to Raju, a real estate agent, and met him over a cup of coffee the following day. The agent told them such cases were common, and they could enter into an arrangement in which the seller can transfer the loan. They were relieved but wanted to know more. They ordered another round of coffee, and the questions started to flow.

What's the process?

The buyer can go to a bank or housing finance company and ask for a home loan. Most lenders offer loans even if the seller hasn't finished paying theirs. Lenders used to charge a prepayment penalty of 2-4% of the loan amount if the principal was repaid early, but most banks have now done away with this. There are two possible scenarios here: (i) The buyer takes a loan from the same lender as the seller. (ii) The buyer chooses a different lender.

In the first case, the process will be faster. Before disbursing any loan, a bank checks the borrower's credit score, cash flow, income, and details of the collateral, which in this case is the flat.