30 terms all home buyers should know


In this article, we decode 30 oft-used terms that a buyer would recurrently hear throughout his home-buying journey and afterwards

Parties involved in real estate transactions, often hear many unique sector-related terms. This may often be confusing, especially for first-time buyers during an already complicated and stressful home-buying journey. In this article, we simplify 30 of the oft-used terms that one would recurrently hear throughout the home-buying journey and even afterwards.

 

EMI

Equated monthly installment (EMI) is the money that you would pay to your bank, if you take a home loan to make the purchase. The bank would, in agreement with you, fix a date on which this money would be electronically deducted from your account every month. Ensure that you do not default on any of the payments, to avoid penalties and a hit on your credit score.

See also: Home loan interest rates and EMI in top 15 banks

 

Loan tenure

The fixed period for repaying your home loan is known as the loan tenure. This could span between 10 and 30 years. A borrower can always repay his loan faster and cut short the tenure, to save on interest.

See also: Factors that affect home loan tenure

 

Co-applicant

When two or more people apply for a home loan together, they are all known as co-applicants. While co-applying boosts your chances of getting a bigger loan amount, it also means all applicants are equally tied to this financial obligation.

See also: Difference between a co-borrower, co-owner, co-signer and co-applicant of a home loan

 

Interest rate

Banks charge an interest on the home loan. Note that the rates offered to women borrowers are invariably lower than the rate offered to men. Currently, the interest rate charged by financial institutions varies from sub-7% to over 9% per annum, on home loans.

 

Floating-rate interest

If you opt for this, the bank will (it is expected to) change the interest rate on your loan, every time the banking regulator increases/decreases the guidance rate known as the repo rate. When the RBI increases rates, the bank would follow suit. The same is true in case of a reduction.

 

Fixed rate interest

If you keep the interest rate fixed for the entire term, changes in monetary policy have little bearing on your payment plan. However, it is worth mentioning here that fixed rates are not fixed for the whole tenure.

See also: Fixed vs floating vs semi-fixed home loan

 

Repo rate

Repo rate is the rate at which India’s banking regulator, the Reserve bank of India (RBI), lends money to scheduled banks. Home loan interest rates are benchmarked against this rate. A reduction in the repo rate could result in lower home loan rates while an increase will have a corresponding impact on EMI.

 

Down payment

A borrower has to typically arrange 20% of the property value from his own pocket, since banks only lend you 80% of the money. The 20% amount is known as down payment.

 

Prepayment

When you pay your home loan before its tenure, this is known as prepayment. While there are no charges on pre-paying your home loan if it is a floating rate-based loan, banks do charge a prepayment fee from those borrowers whose loans are on a fixed rate.

 

Rest

Depending on the ‘rest’ (this could be daily, monthly, quarterly or annual) mentioned in a loan agreement, the bank recalculates the reduction in the principal amount at a definite period. This means, even if you are paying a monthly EMI, your outstanding loan liability will change, only after a year if the loan agreement has provisions for an annual rest.

 

Spread

The base rate is the rate below which banks are not allowed to lend and they tweak their ‘spread’ to maintain the rate of interest at the same level, despite any change in base rate due to market movements. Hence, the spread is the difference between the benchmark rate and the rate charged by the bank. For example if the base rate is 8.25% and the lender sets the spread to 25 basis points, then, the home loan offered will be at 8.50%. However, if the benchmark rate falls to 8% due to market fluctuations, at the same level of spread (25 basis points), the lender will offer the loan at 8.25%.

 

Loan default

In case a home loan borrower fails to pay his EMI for two months, they will have to pay a penalty for the default. The bank may also initiate legal action in case of a wilful default.

See also: What to do if you default on your home loan?

 

Property appraisal

For property appraisal the banks will send a team of experts to evaluate the property that the buyer intends to purchase, in order to establish its market value. They would offer a maximum 80% of the market value of this property as loan, irrespective of your personal loan eligibility. This is also done, to safeguard the banks’ interests.

 

Loan-to-value ratio

Loan-to-value ratio or LTV is the ratio of the mortgage amount to the appraised value of the property. This value of the property is determined by the bank’s technical agency. The bank would only provide 80% of the asset value as loan, irrespective of one’s high take-home salary.

 

Credit score

A credit score is assigned by credit bureaus and denotes your credit profile. The ranking in India is given on a scale of 300 to 900. The higher the credit score, the better your chances of securing a loan.

See also: Factors that adversely affect a home buyer’s credit score

 

Circle rate

Circle rates are the government-determined rates, below which a property cannot be registered. As land is a state subject in India, local authorities have the responsibility to set these rates and to regularly revise the same.

 

Stamp duty

State governments charge stamp duty from property buyers, in the form of stamp duty and registration charge. A portion of the property value must, thus, be paid to the government, to register your property. Stamp duty rates may vary between 3% and 10%, depending on the state where you are buying. Also note that women may be charged lower stamp duty, as compared to men.

 

Registration charge

This one is a central duty and a buyer generally has to pay 1% of the property value as the registration charge. You become the legal owner of a property, only after the registration process is complete.

 

GST

Also part of the home-buying process, is the Goods and Services Tax (GST). Developers have to pay this duty to the government, on the sale of units in under-construction projects. This charge is then passed on to the buyer.

 

RERA

The Indian government came up with a sector-specific law – the Real Estate (Regulation and Development) Act (RERA) – in 2016. Now, property-related disputes involving under-construction projects fall under the purview of state real estate regulatory authorities.

 

Maintenance charge

If you are buying a flat in a housing society, you would be obliged to pay a monthly maintenance charge, for the available common facilities. These charges differ, depending on the amenities and facilities a project has to offer and the size of the housing project.

 

Sale agreement / agreement to sell

After a buyer and a seller reach an agreement, they first execute an agreement to sell, which is a document that sets the terms and conditions, based on which the future transaction will take place. The creation of the agreement to sell, means terms have been placed for the transaction.

 

Sale deed / conveyance deed

A sale deed/ conveyance deed is a document created at the time of sale of the property. The signing of this deed signifies that the process of sale has been completed. After signing the sale deed, the buyer becomes the owner of the property.

 

sale deed

 

See also: Agreement for sale versus sale deed

 

Token money / earnest money deposit

Earnest money deposit is the amount that a buyer pays to the seller, to show that his interest in a said property is genuine. The earnest money deposit, also known as a binder, token money or good-faith deposit, is often paid, once a verbal acceptance upon an offer has been made. After the token money is paid, which is typically % of the entire value, the buyer and the seller are both under obligation to carry forward the verbal agreement. If the buyer fails to meet the obligation, the seller could forfeit this amount.

See also: Dos and don’ts for paying token money

 

TDS

Under the Indian law, the buyer is obliged to deduct tax at source at the time of the transaction, on behalf of the seller and deposit the amount to the government.

See also: TDS on property purchase under Section 194IA

 

Mutation

A buyer becomes the rightful owner of a property, only after his ownership title is entered in the official records of the local municipal body. This is known as property mutation, referred to as ‘Dakhil Kharij’ in Hindi, under which the name of the previous owner is removed from the records and the new one is entered.

 

Common areas

Common areas are those areas in a housing society, which are open to all residents. Monthly maintenance charges also include the amount spent on maintaining these areas in a housing society.

 

Carpet area

According to the real estate law, carpet area means the net usable floor area of an apartment, excluding the area covered by external walls, area under service shafts, exclusive balcony or veranda area and exclusive open terrace area. However, the carpet area includes the ‘area covered by the internal partition walls of the apartment’. The law emphasises that developers sell apartments on the basis of carpet area.

 

RWA

A residents’ welfare association (RWA) is an association of the housing society members that is created for its smooth functioning and maintenance.

 

Land title

A land title is an official record stating that a particular piece of immovable asset belongs to a particular person. To transfer a land title to one’s name, the buyer has to pay the authorities money, in the form of stamp duty and registration charges.

 

FAQ

How much money should I save before buying a house?

A buyer should save enough money to bear at least 25% of the cost of the property while the rest could be taken in the form of a loan.

What should you not do before buying a house?

Do not take additional credit, or disrupt your credit score or change jobs, before you buy a new house.

What is super area?

Super area is another term for super built-up area.

 

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