Understanding Encumbrance Certificate in Home Loan and How it Affects Property Purchase

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When applying for a home loan or planning to purchase a property, you need to keep certain things in mind, like the encumbrance certificate. This is an essential requirement which you must look into before proceeding further. An encumbrance certificate in home loan is a crucial document to get your loan sanctioned and more important while you are about to take the final decision. It should belong to all parties financially involved with the property such as buyers and financial agencies providing loans against the property. 

While purchasing any property, ask for an encumbrance certificate from sellers to avoid any kind of hassles. A buyer should remain well informed of this certificate. An encumbrance certificate is needed for selling any property as well. 

To know how to obtain an encumbrance certificate, its importance, and how to apply for it, read along.

What is an encumbrance certificate?

An encumbrance certificate is a legal document used as evidence of ownership when you plan to purchase a property or take a home loan. Real estate investors should also verify that their housing property is free of any monetary or legal dues. An encumbrance certificate gives access to all this information and guides one to find out all registered transactions that took place on the particular property.

Apart from that, to carry out the home loan application process, borrowers must submit an encumbrance certificate to the lender. Encumbrance certificate is easily available at the sub-registrar’s office where the property remains registered.

What is the importance of an encumbrance certificate in a home loan?

Encumbrance Certificate (EC) is important not just for purchasing any property but also for applying for a loan against property. Before banks proceed with a loan application, they ask for a property encumbrance certificate for the previous 10 to 12 years, depending on the age of property. So, if borrowers have planned to purchase a residential property, they should obtain the property EC beforehand and check their CIBIL score online as well.  This will enable them to secure legal ownership over the property and get fast approval for the loan. The document also helps lenders to analyze buyers’ eligibility for a home loan.

Types of encumbrance certificates

Details of types of encumbrance certificates are given below: 

Form 15– This is ideal for borrowers purchasing property or taking loans. Form 15 provides all detailed information regarding date of sale of a property, if it’s gifted if there is any involvement of the second party etc. Along with all these, the application form also keeps borrowers informed relating tax benefits for a home loan, if any, and other transactions.

Form 16– This form is for “Nil Encumbrance Certificate”. This is applicable for the property which does not hold any encumbrances when borrowers look for purchasing a property.

How to apply for an encumbrance certificate?

To purchase a property, it is important to get the encumbrance certificate. If a buyer proceeds without this certificate, both financial and non-financial liabilities of the property will remain unknown. This certificate lets buyers know every detail of the property. This makes it easy for the buyers to understand whether they are qualified for taking a home loan.

Purchasers can apply for an encumbrance certificate both offline and online mode. Buyers get the certificate faster if applied through online mode. Online applications take 2 to 3 working days to process.

  • Online Application Process

The procedure to obtain an encumbrance certificate through online mode differs from one state to another. If any buyer is unable to get this certificate online, individuals should visit your Sub-registrar’s Office.

To complete the entire process online, follow these steps:

Step 1: Visit the official website of the state and select the option to get an encumbrance certificate

Step 2: Fill the entire application with details mentioned for the encumbrance certificate before clicking on Save/Update

Step 3: Click on “Calculate Fee’ to find out the amount to pay for the certificate

Step 4: An acknowledgement slip will appear on the screen after submitting the application

Step 5: An inspector will examine all records of the property entered in the application for some time

Step 6: The investigator issues an encumbrance certificate after investigation. It entails all transactions in the property within the stated period. If there is no transaction at that time, the buyer will be provided with a nil encumbrance certificate.

  • Offline Application Process

To track the record of transactions that took place with respect to a property, borrowers should follow these steps to obtain the encumbrance certificate through offline procedures: 

Step 1: Submit an Application for an encumbrance certificate at the nearest registration office. Along with the application, borrowers should also submit an attested copy of address proof, title documents, fee for the certificate, and complete details of the property

Step 2: The officer shall start to search for required information from that specific period

Step 3: An encumbrance certificate is issued providing detailed information on transactions that occurred within the property. If there is no occurrence of a transaction, a Nil encumbrance certificate is provided

Step 4: Certificates are granted from 15-30 days from date of application

Step 5: All formats for applications are prescribed in the annexures of the States Registrations Act. In general, application for an encumbrance certificate is filled out in Form No. 22. Issuance of the certificate takes place in Form No. 15 and issuance of a Nil Encumbrance Certificate (NEC) occurs in Form No. 16 following state laws.

Many financial institutions provide pre-approved offers to existing customers. These are provided on products such as home loans and loans against property. This makes the home loan verification process faster for eligible borrowers. After accepting the pre-approved offers, borrowers wait to complete the home loan verification process.

Purchasers should acquire all the relevant documents of the property they are planning to purchase. It is important to have an encumbrance certificate in home loan because it holds the record of financial transactions. There are some other documents also for verification. Buyers should scrutinize all the documents and certificates to make sure there is no legal liability. 

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