A house in auction is generally available at lower-than-market-rates, as a result of which many potential buyers want to purchase such properties.
Here are the major steps involved in financing a house bought in an auction.
- Due diligence
Once you have scouted a house in auction, you need to inspect it properly. Make sure to check the legal titles of the property. Hire a lawyer to verify property documents and investigate the title of ownership. Furthermore, check if the property is mortgaged to any other financial institution or whether there is an outstanding loan against it.
- Physical inspection
Once you are satisfied with the legal titles and the papers of the property, check it physically to get a better idea of how much you should bid for it. Most financial institutions mention the inspection date and time in the auction notice; otherwise, you can talk to the institution to fix a date for visit.
While inspecting the site, be sure to check if there is a bank notice on the property. Observe if the possession has been taken by the financial institution or if the defaulter continues to live there. Ensure that the institution has physical possession of the property, else you are likely to face difficulty in getting possession of the house later. Make a note of the substantial cost of repair and find out if there are pending dues like utility bills, taxes, or maintenance charges as these can become a burden on you later.
Once you are satisfied with the physical verification of the house in auction, you will have to submit the Tender Form and the EMD (earnest money deposit) before the tender closing date. The EMD is the amount deposited to prove that you are a serious bidder. Along with this, the financial institution might ask you to submit KYC documents.
Before the auction, you will also have to submit your bid by filling out a bidding form. In this document, mention the price at which you want to buy the property. Your price could be the reserve price set by the financial institution or any amount above it.
- Auction date
If you become the successful bidder, you will have to deposit 25% of the bidding amount, typically within 24 hours. This 25% of the bid amount includes the EMD amount. The remaining amount needs to be paid within 15 to 30 days. If you want finance for auction house, you can opt for a home loan.
Banks generally don’t extend home loans on auctioned properties. However, you can approach a non-banking financial company (NBFC) and apply for home loan. With NBFCs, you can check your monthly payments with a home loan EMI calculator to accurately calculate the funds required.
If you want to buy an auctioned property with a loan, it is best to get a pre-approved home loan as finance for auction house. If you are unable to pay off the amount for the property, you will lose it along with the EMD amount.
Once you pay the entire amount, you will get a sale certificate from the financial institution, which will prove the transaction.