Making the decision to buy a home, identifying the desired location and property is just the first and most simple step in your home buying journey. The real efforts start after this point. Let’s find out more about the key aspects that need to be covered during a home purchase.
What are the most important points which you need to keep in mind when buying a property, since this is going to be a major decision affecting lot of areas of your life?
- Credibility of the developer and whether the developer / company are well organized, also check the corporate profile of the company / developer
- Title of the property and whether the project is approved by major banks ?
- Location and budget suiting your needs – However, budget may be stretched if the location and quality are acceptable, as property transaction is not a frequent one and is long term
- The quality of the developer’s / company’s old projects which are at least say 5-15 years old
- You should personally see those old projects of the developer/company to visualize and predict the future of the project under consideration, say after 5-15 years
- Will you be able to locate the developer / company say after 15 years of possession? Are the developer/ company changing names with every new project?
- Are Developer’s / company’s old project properties commanding good resale premium in the market?
- Purchase of real estate , being a very high capital investment and generally few times in life, overall quality of the property should be given the highest priority vis a vis budget. Price is forgotten after some time but quality speaks for ever. One should look at the total nett cost of ownership rather than just the initial investment. Total nett cost of ownership includes the maintenance, upkeep cost, resale value , outgoings over a period of time and long term appreciation benefits. A 10% cheaper property at times, may command around 50% lesser price after few years
- Innovative and ahead of time property ensures better returns and better quality of life
- Generally, developers /companies having sole interest in real estate development will deliver better product and services, as compared to the developers/ companies having multiple business interests, due to single minded focus and giving 100% to the sole business
- Domain knowledge and technical expertise of the developer / company which contributes to a great extent in ensuring optimal returns and hassle free enjoyment of the property
- One should always emphasize on doing 100% Apple to Apple (feature to feature, specification to specification) comparison as there would be apparently same area with different rates per sft products, but with a very different specifications and amenities and one can play a lot in pricing which unfortunately when not checked consciously , hurts a lot at a later date
- Whether the developer/ company is using standard brands available in the market
- Whether the developer / company believes in clear title of the property , robust construction , long term life of selected materials & components , good planning , value engineered development , innovation , quality , development of useful amenities , high standard of safety & security , fair trade practices OR whether the developer / company is only price focused ?
- Transparency and trust-worthiness of the developer / company , more so, when the property is under construction
- Whether the developer is mass production focused or quality focused ?
- Possession Schedule and past track record of the developer
- The after sales service provided by the developer
- Customer feedback about the developer/ company and references from the past customers
- Whether the gentry of the project will offer your children a helpful environment to grow up as smarter citizens and would you be able to enjoy company of like minded neighbors ?
What are the documents you need to check before buying?
- Check for proper conveyance of Title in favor of the builder
- Check the license/development right/approvals of the builder
- Check clear and marketable title of the project
- Ensure execution of proper Allotment Letter/Sale Agreements on your payments
- Ensure whether reputed financial companies approve the project. This will help you in getting financial loans
- Ask for Occupation/Completion Certificate for completed projects
- Ensure the Conveyance Deed is registered once the entire payment has been made
- For buying a property you need to check Deed of Conveyance, Mutation Certificate (for complete property), Land Registration Status, Sanction Plan, Search Report and Payment Schedule (for under construction). It is a must that you go through all the documents relating to the origin of the property, chain of Title, Occupancy Certificate, sanctions from various authorities dealing with building plans, fire safety and Completion Certificate and obtain title clearance certificate from a competent lawyer
- For re-sale property, check demand notice relating to renovation, tax dues, transfer fees by association or society, latest receipts of payments made towards various out-goings such as water, electricity, ground rent etc.
What is meant by Carpet Area, Built-Up Area & Super Built-Up Area?
Carpet area is defined as the precise area within the walls of your home. If you had to lay out a wall-to-wall carpet in your entire home, the area covered would be the carpet area.
Built-up area is inclusive of not just the carpet area but also the area being occupied by the walls of your home.
Super built-up area takes into account all the area under the common spaces which is the apartment’s proportionate share of the lobby, staircase, elevator and the corridor outside the apartment.
What constitutes conclusion of sale of a property?
The housing society share certificate and the sale/purchase deed of the property are the main documents required to sell a residential property. If the property has been sold and bought multiple times, a copy of the previous deeds may be required to prove the authenticity of the deal. Other than these, copies of Stamp Duty and registered house documents will also be needed. In case of property being mortgaged, these papers will be held by the bank and you can use a photocopy of the required documents to initiate a deal. Depending on the kind of property and ownership, some more documents, such as a No-Objection Certificate from the housing society and a documented consent in case of jointly owned property, may be required.
What is a Sale Deed?
A Sale Deed is a document prepared on the basis of previous ownership document for the transfer of property from seller to buyer, providing the buyer the absolute and undisputed ownership of property. Source: CreditVidya, credit advisory firm helping borrowers on credit and debt management. Done
How much is the Registration Fees on sale of immovable property?
During the transfer of property from one to another, the stamp paper and registration fee has to be paid which is equivalent to 7 to 8 per cent of the value of the property or those of circle rates. These rates are the notified rates of a particular area set by the government on which the registration charges on the value of the property are calculated. The circle rates can be seen on government registration and stamp department websites of each city. Source: MB Legal Expert (Atulay Nehra – Openhouse)
What are the things to actually look for when zeroing in on a house?
Budget, location, type of property, objective of buying and choice of property are the determining factors for purchase of property from an end user’s perspective. Real estate values are governed by demand and supply. This may vary on a project to project basis. The projects which see good demand normally do not see a price correction. Source: E-book
While buying a house the top questions to keep in mind are:
- When to Buy?
- What to Buy?
- Where to Buy?
- How to Buy?
- How much to pay for it?
- Which locality to buy in?
- What type of property to buy?
- How to extract maximum return from your property investment?
What is the difference between a builder floor apartment and a multi-storey apartment?
A single floor apartment is one where the builder buys a piece of land, often old plots which are up for redevelopment, constructs flats on each floor according to the permissible Floor Area Ratio (FAR) and building byelaws and sells them as independent units within the same building. The land belongs proportionately to all the buyers of single floors. Since there are smaller numbers of units than in a multi-story apartment, these lack economies of scale and so have fewer common facilities such as maintenance and back-ups compared to larger multi-storey apartments. But these are newer apartment units in downtown or preferred areas and come at a price lower than multi-storey units.
A multi-storey remains the most preferred housing units in metros and large cities today. It is a cluster of apartments in a high-rise building developed in a plot with all amenities available within a gated community. These units can be aggregated and constructed by developers or in the cooperative mode as Cooperative Group Housing Societies (CGHS).These need good common facilities management to take care of aggregating services and providing them to individual units for a fee. This fee is levied as monthly maintenance charges. They cover water and power supply, including back-ups, lift and common area maintenance and landscaping. Many developments also provide plumbing and electrical services for a fee. Source: E-book
What is Stamp Duty and who is liable to pay the Stamp Duty, the purchaser or the Developer?
Stamp Duty is supposed to be paid every time there is a transfer of ownership. It is calculated on the basis of the total value of your property. The amount to be paid varies from city to city. Source: E-book
Which documents must be compulsory registered? When and where should a document be registered?
The Registration Act, 1908 came in the year 1908 and made compulsory registration of the deed. You have a property of the year 1978. Therefore, it should be registered. Since the agreement is unregistered, it is not valid and does not transfer the ownership to you. Before you make a gift deed, you need to register the sale deed in your favor as you are not the legal owner yet. Source: S Jalan (Openhouse)
What is meant by valuation of property?
Valuation of property simply means arriving at the actual prevailing cost of the property. It could depend upon number of parameters, location of property being the most important one. One needs to consider other parameters such as age of property, projects available, facilities offered and the sizes available in that project. The latest transaction price of a similar property needs to be considered to arrive at the closest value of the given property. Source: Openhouse (MB Expert)
What precautions need to be taken while buying an under construction flat?
Opting to buy an under construction flat has its advantages as you obviously pay less than for a ready possession one. But be vigilant and ask the builder to furnish all the relevant papers and permissions to ascertain the genuineness of the project.
Approved plan of the building along with the number of floors; make sure that the floor where you have booked your flat has been approved. Check if the land on which the builder is building is his or he has undertaken an agreement with a landlord. If so, check that the title of land ownership is free and clear. Check the building byelaws as applicable in the area to make sure that there are no violations of front setback, side setbacks, height, etc. Check specifications given in the agreement to sell to ascertain whether the builder is providing the same as promised. Conduct a thorough background check of the builder and his reputation. Ensure that NOCs for Ensure that urban land ceiling NOC (if applicable) as well as NOCs from the electricity, water and lift authorities has been obtained. What exactly is built up area, super built up area, and carpet area and what is the difference between them?
Carpet Area is the area of the flat which does not include the area of the walls.
Built up Area includes the area of the walls.
Super Built up Area is generally applicable in multi storied units and includes the built up area along with the area under common spaces such as the lobby, lifts, stairs, etc.
Now this is a crucial point to be covered before deciding to buy the flat. Often only the super built up area is mentioned so that the flat area seems larger than it actually is. It is prudent to know the exact carpet area to get the true size of your flat.
Who should pay Stamp Duty - the buyer or the seller?
The buyer, as the liability of paying stamp duty is that of the buyer, unless there is an agreement to the contrary. Section 30, of Bombay Stamp Act, 1958 states the liability for payment of stamp duty.
Is Stamp Duty payable on the market value of the property or on consideration as stated in the agreement?
The Stamp Duty is payable on the agreement value of the property or the market value whichever is higher.
On what legal documents is a stamp duty levied?
Significant legal documents required in property transactions such as Agreement to Sell, Conveyance Deed, Exchange of property, Gift Deed, Partition Deed, Power of Attorney, settlement and Deed and Transfer of lease attract Stamp Duty calculated as per the market value of the property.
Important Legal Documents necessary for property transactions.
What documents are necessary while buying an under construction home?
While buying an under construction home an allotment letter and development agreement are the vital documents.
The allotment letter contains details regarding the agreed price, payment and construction schedule, house plans, delivery date and builder’s liability in case of late completion or problems after possession. It is issued to the buyer upon payment of the 15% of the property value to the developer. The development agreement is inked between the builder and the landowner and contains details regarding the terms and conditions on which the landowner has permitted development of his property.
What is a Title Deed?
A title deed is an investigation into the title of the land, over a period of 30 years, to ascertain whether the property is unencumbered and has a clear and marketable title.
Always insist on checking the original title deed instead of just a photocopy.
Confirm that the seller is indeed the owner of the property.
Ideally you should get the title deed verified from legal experts to be on the safer side.
If the title deed is not clear and marketable, getting finance from recognized financial institutions will become extremely difficult; get in touch with a financial institution to check if they would provide a loan for that particular property.
What documents are necessary while buying a constructed home?
While purchasing an already constructed property it is important to check that the seller has the title and possession of the property as well as the right to transfer the property. Also check that the property adheres to municipal, planning authority requirements. That there is no tenant and that the property is not mortgaged.
Whether property tax, society tax, electricity, water bills etc have been paid in full.
That you are in possession of original documents of all the necessary documents – allotment letter, completion certificate, occupation certificate and all other documents, given by the original builder
What is Stamp Duty and Sale Deed?
Stamp duty is usually a percentage of the transaction value levied by the state government, on every registered sale. The agreement to sell clearly states the stamp duty, which is usually paid by the buyer, and he gets his name registered in the land revenue records. The final sale deed should be stamped and registered at the appropriate local area office. Both the developer/seller and the purchaser need to be present at the sub-registrar’s office, for registering the agreement.
Think you are home free? Not quite… after thoroughly evaluating you, the bank will verify the property. The reason is that a home loan is a secured loan where the property is used as collateral. The bank will keep all the original documents related to the property, title, NOC etc. with them until the loan is repaid. The banks then conduct a legal check of the property to ensure that it has a clear title. Banks don’t lend in cases of disputed properties and unclear title deeds.
In addition banks also conduct a technical evaluation of the property by sending in qualified valuators who assess the property on various parameters.
Purchasing a home is a big financial decision. Let’s find out if there are any tax benefits that can be availed of against buying a house.
Are there any income tax benefits for property purchase?
If you are getting your house purchase financed via a bank or a financial institution then as per Section 88 of the income tax you can claim benefit for the principle repayment, interest on loan is deductible u/s 24 from income from House Property. But these benefits are available only for residential properties and not for commercial properties.
Should I pay tax if I sell off any residential or commercial property?
Yes, you are liable to pay Capital gains tax on profit arising from sale of a house property.
Can I claim tax exemption on capital gain?
In fact you can. The Income Tax act has made provision u/s 54 & 54A–G of the act whereby you can claim exemption from tax on capital gains.
What are the types of home loans available?
There are a variety of home loans available. They are:
1. Home purchase loan
This is the common loan for purchasing a home.
2. Home improvement loan
This loan is given for undertaking repairs, renovations and/or upgradation to your home.
3. Home construction loan
This loan is available for the construction of a new home.
4. Home extension loan
Home extension loans are given for expanding or extending an existing home. For example, addition of an extra room, etc.
5. Home conversion loan
Available for those who have financed the present home with a Home Loan and wish to purchase and move to another home for which some additional funds are required. Through a Home Conversion Loan, the existing loan is transferred to the new home, including the additional amount required, eliminating the need for pre-payment of the previous loan.
6. Land purchase loan
This type of loan is sanctioned for purchase of land for home construction.
7. Bridge loan
The Bridge Loan is designed for people who wish to sell the existing home and purchase another. The bridge loan helps finance the new home, until a buyer is found for the old home.
8. Balance transfer loan
Balance Transfer loans help you pay off an existing home loan by availing a new loan from another willing lender institution.
9. Refinance loan
This loan helps you pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home.
10. Stamp duty loan
This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of a property.
11. Loan TO NRIs
This loan is tailored for the requirements of Non resident Indians (NRIs) wishing to build or buy a home in India. These loans are provided by eligible financial institutions in accordance with the guidelines issued by Reserve Bank of India from time to time.
What is an EMI?
EMI (Equated Monthly Installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of interest due as well as a portion repayable towards the principal.
What are the incentives offered by lending institutions?
a) Some of the lending institutions sanction the loan in-principal in advance of your identifying the property
b) Free accident insurance
c) Waiving of pre payment penalty
d) Waiving of processing fee
e) Free property insurance
What are the eligibility conditions for a home loan?
To qualify for a home loan, most of the lending institutions in India require you to be:
a) An Indian resident or NRI
b) Above 21 years of age at the commencement of the loan
c) Below 65 when the loan matures
d) Either salaried or self employed and
e)Worthy of credit facility.
For more details, refer module on “What are you getting into?”
What are the interest rates offered for home loans? What are: Daily Reducing, Monthly Reducing and Yearly Reducing?
Interest rates vary from institution to institution and presently range from 9% to 12.5 % for floating interest rate & 11.25% to 14% for fixed interest rate (for loan amount below 20 lakhs). The interest on home loans in India is usually calculated on monthly reducing balance. In some cases, daily reducing basis is also adopted.
In this system, the principal, for which you pay interest, reduces at the end of the year. Thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender through EMIs paid during the year. This means the EMI for the monthly reducing system is effectively less than the annual reducing system.
In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system.
What is the best way to select the cheapest home loan?
Calculate the total amount payable under the different loan options available for a fixed loan period and amount. The loan under which minimum total amount is payable will be the cheapest source of funds.
What is a fixed rate of interest?
Fixed rate of interest means that the rate of interest remains unchanged for the specified duration of the loan. This means you do not benefit, if rates of interest drop in the market. Similarly you do not lose if rates of interest increase. Under fixed home loan rates also, banks/HFCs retain the right to increase the rate of interest after the prescribed interval. This provision is mentioned in the loan agreement. This is known as reset clause in the fine print.
What is a floating rate?
This is the rate of interest that fluctuates according to the market lending rate. This means you stand the risk of paying more than you budgeted for in case the lending rate goes up.
What are the other costs that usually accompany a home loan?
Home loans usually attract following extra costs:
a) Processing Charge: It’s a fee payable to the lender on applying for a loan. It is either a fixed amount or may be a percentage of the loan amount applied.
b) Pre-payment Penalties: When a loan is paid back before the end of the agreed duration, a pre-payment charge is demanded by some banks/companies, which is usually between 1% and 2% of the amount being pre-paid.
c) Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
d) Miscellaneous Costs: It is quite possible that some lenders may levy documentation or consultant charges.
e) Registration of mortgage deed.
What are the repayment period options?
Repayment period options range generally from 5 to 20 years.
How do banks/HFCs decide on the loan amount?
Usually, most companies give home loan up to a maximum of 85% of the cost of the house. Balance 15%, sometimes called ‘seed money’, has to be provided by the loan applicant upfront. The amount, for which the applicant is eligible, is determined by the age, income, no. of dependents, monthly outgoing and repayment capacity. This varies from case to case.
Are securities required for home loans?
In most cases, the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some institutions may ask for additional security such as life insurance policies, FD receipts and share or savings certificates.
Do I require a guarantor to get a home loan?
Some institutions ask for 1 or 2 guarantors.
What is the time required for loan application approval?
About 3-15 days
What is the time required for loan disbursement?
On an average, loans are disbursed within 3-15 days after satisfactory and complete documentation and completion of all relevant procedures, including proof that 15% of the cost has been paid upfront to the seller of the property.
Can a person make joint application for home loans?
Most institutions are willing to consider the joint incomes of the applicants for deciding the loan amount. Some institutions do not require the co-applicants to be co-owners of the property to be purchased.
What are the tax benefits of home loans?
Both principal as well as interest of home loans attract tax benefits. With effect from 1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act 1961:
Interest paid on the home loan
As per Sec 24(b) of the Act, a deduction up to Rs. 150,000 towards the total interest payable on the home loan towards purchase / construction of house property can be claimed while computing the income from house property. (The deduction stands reduced to Rs. 30,000 in case of loans taken prior to March 1, 1999). The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.
Please remember that in case of self occupied property, this deduction is allowed only for one such self – occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).
Principal repayment of the home loan
As per Section 80C along with section 80CCE of the Act, the principal repayment up to Rs. 100,000 on your home loan will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions.
What is reverse mortgage?
A loan that enables elderly homeowners, to use their home’s equity without selling their home or moving from it. A leading institution makes a check out to the homeowners each month. This payment is really a loan against the value of a home.
Should one go for long-term home loan?
The general consensus seems like if you can afford a 15-year fixed mortgage, you should go for it. The interest rate will be lower, you own your home in half the time, and the payments aren’t actually that much higher. But what if you just look a 30-year fixed mortgage and had the discipline to pay enough extra each month to equal the 15-year payment?