Real estate: Can you get a home loan on an unregistered flat?

Securing a home loan is crucial for many prospective homeowners, making it extremely important to understand the variables that could affect this procedure. One question is whether you can get a home loan on an unregistered flat. This article delves into this matter to provide an in-depth perspective. 

An unregistered flat can be defined as a property that is not formally registered under the relevant property registries of the local government. This could be because the property construction has not been finished, the paperwork is still in progress, or an unwillingness or negligence by the owner to register the property. 

Amit Gupta, MD at SAG Infotech, said that property registration is not just a legal requirement but also a critical step in ensuring the authenticity of the property’s ownership. Unregistered flats can be associated with various complications, such as disputes over ownership, potential encumbrances, and difficulty in resale. Lenders often prefer financing properties with clear titles and legal documentation. “If you are considering obtaining a home loan for an unregistered flat, be prepared for a more complex and potentially lengthy approval process, as lenders may require additional safeguards to mitigate the risks associated with unregistered properties,” said Gupta. 

The primary responsibility of a lending bank or financial institution before approving a loan is to ensure that the title of the property in question is clean and clear. This acts as security to the loan provided. Ergo, when a prospective borrower approaches a bank with a request for a home loan on an unregistered flat, the bank needs to validate the legality and title of the property. 

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Banks typically stay away from financing unregistered properties due to the risks involved. The most prevalent reason revolves around the legally questionable nature of unregistered properties. Such properties might infringe upon building laws and regulations or be part of illegal construction projects. In case of legal disputes later, the loan vented by the bank might become a liability. 

Gunjan Goel, Director of Goel Ganga Development, said that the primary consideration from a real estate standpoint involves determining if the proper legal status of the property exists. Any unregistered flats have not been legally completed, and it has the potential for dispute on the ownership. “Security-conscious lenders are mostly reluctant to extend loans to such properties due to concerns over the security of such loans. Thus, it is important for a prospective buyer to conduct thorough investigations on why the flat is not registered, including any outstanding legal disputes or construction matters, before approaching a lender,” said Goel. 

However, this doesn’t mean acquiring a home loan on an unregistered flat is impossible. Certain non-banking financial companies (NBFCs) and private financiers may offer loans on such properties. However, they usually charge higher interest rates due to the increased risk. However, one must prefer taking loans from leading banks because banks have strict regulations before providing loans to borrowers. 

“Consequently, you cannot obtain a home loan without the registration papers. Your application form would not be accepted without registration documents, and this is what the bank would not accept. The first of these is a set of registration documents to be processed against a home loan. Loans are not granted on unregistered properties by banks. That means you should have the registration papers in place before applying for a home loan,” said Goel. 

While it’s technically possible to get a home loan on an unregistered flat, experts don’t generally recommend it. Hence, before considering such a property, consulting with a real estate attorney or a financial advisor is advisable to understand the risks and implications involved.