July 13, 2024

What is a Non-Encumbrance Certificate

A home loan will make it possible for you to live your dream of homeownership. It will allow you to buy a home and pay for it slowly and conveniently

A home loan will make it possible for you to live your dream of homeownership. It will allow you to buy a home and pay for it slowly and conveniently in the form of home loan EMIs. The tenor for home loans of Non-Encumbrance Certificate generally ranges from 20 to 30 years, making home loans a long-term commitment. 

In other words, you will spend a major portion of your adult life covering home loan EMIs. This long loan term eases the burden of loan repayment.

However, it also makes it important for the borrower to ensure that the property they are investing in is not mired in any legal controversy and has a free title. The Encumbrance Certificate helps one establish that. 

What is a Non-Encumbrance Certificate? 

The encumbrance Certificate is a legal document that gives you a detailed account of all the financial and legal transactions that have happened over a property for a specific period. 

The Non-Encumbrance Certificate will contain details about all the previous owners of the property, mortgages that have been held against the property, information regarding release deeds, gift settlements, legal issues, etc. This Certificate is released by the sub registrar’s office and is of two types: 

1. Form 15: If the property you are investing in has any kind of legal or financial liabilities against it, the Sub-Registrar’s office will release Form 15. 

2. Form 16: If the property has a clear title and no financial or legal history against it, the Sub-Registrar’s office releases Form 16.

When you apply for a home loan to help you afford your dream home, your lender will ask you to submit several different documents. 

Non-Encumbrance Certificate

These documents will help your lender ensure that you can afford the loan and easily repay it as well as make sure that the property has a free title and lien and therefore, no problems will arise at a later stage.

For instance, let’s imagine that you want to invest in a property and are seeking a loan to help you arrange the funds needed to buy the property. 

The previous owner took a home loan and therefore before your lender approves your request for a home loan, they will require you to confirm that the previous owner has cleared the entire loan and the property now has a free title. 

A non encumbrance certificate helps you do that. Further, after you have bought the property, if you forget to pay the property or land tax for more than 3 years ever, know that you will need to submit the Non-Encumbrance certificate to clear the pending payment and in the absence of the non-encumbrance certificate, you won’t be able to clear the dues. 

How to Obtain the Non-Encumbrance Certificate? 

Planning to apply for a home loan? Need a Non Encumbrance Certificate to close the deal. Here’s how you can obtain the Non-Encumbrance Certificate. 

1. To obtain the Non Encumbrance Certificate, go to your state government’s official website and go to the Stamps and Registration section. 

2. Next, you will see the option Application Form for Encumbrance Certificate. 

3. Download Form 22 from this section and fill it out properly.

4. You will need to add a Rs.2 non-judicial stamp and address-proof document along with all the other documents asked by the concerned department. 

5. Go and apply at the Sub-Registrar’s office.

6. Once the Sub-Registrar’s office receives your loan application, they will send someone to verify the property alongside all the property paperwork and you will receive the Encumbrance Certificate within a week of applying for it.

Final Words 

A home loan is a big responsibility. It involves a huge amount of money and people spend a considerable portion of their total income on covering EMIs. 

Therefore, it is crucial that one makes sure that the property they are investing in has a free title. Before sanctioning you a home loan, your lender will ask you to submit the encumbrance Certificate to ensure this.  So, do your due diligence before approaching a housing finance provider.

Frequently Asked Questions

Q1: What is a Non Encumbrance Certificate (NEC)?

A Non Encumbrance Certificate (NEC) is an official document that certifies that a property is free from any financial or legal liabilities, such as mortgages, loans, or legal disputes. It is essential for verifying the ownership and ensuring that the property can be transferred without any issues.

Q2: Why is an NEC important when applying for a home loan?

An NEC is crucial when applying for a home loan because it assures the lender that the property in question does not have any existing encumbrances. This minimizes the risk for the lender, making it easier for you to secure a home loan.

Q3: How can I obtain a Non-Encumbrance Certificate?

To obtain an NEC, visit the sub-registrar’s office where the property is registered. Provide details such as the property title, ownership documents, and the period for which you need the certificate. You may need to pay a processing fee.

Q4: For what period should I request the NEC?

The period for which you should request the NEC depends on the lender’s requirements.