House Hunting -Terms you need to know 

House hunting involves many unique terms that can be confusing, especially for first-time homebuyers.  

This blog aims to make these terms easier to understand and describe what they do. We hope this will make the process of house hunting easier to understand by giving clear definitions. 

Let’s understand commonly used terms while house hunting to simplify the process

House Hunting term you need to know- The EMI 

If you buy a home with a loan, your bank will charge you an EMI. With your consent, the bank will electronically deduct this money from your account each month. Do not miss payments to avoid penalties and a lower credit score. 

Loan Tenure: 

Loan duration is the specified period for repaying your house loan. This could last 10–30 years. Borrowers can repay loans faster and shorten terms to save interest. 

Co-applicant: 

Two or more people applying for a house loan jointly are co-applicants. Co-applying increases your chances of securing a larger loan but also makes all applicants financially responsible. 

House Hunting term you need to know: Interest Rate 

Home loan interest is charged by banks. Women borrowers always get cheaper rates of interest than men. Financial organizations charge house loan interest rates from sub-7% to above 9% per year. 

What is the floating rate of interest in House Hunting? 

If you choose this, the bank will modify your loan interest rate whenever the banking regulator changes the repo rate. When the RBI raises rates, the bank does too. The same goes for reductions. 

Fixed-rate interest: 

Changing monetary policy has little impact on your payment plan if the interest rate is fixed for the term. Fixed rates do not last the entire term. 

What is the Repo Rate? 

The Reserve Bank of India (RBI) provides scheduled banks money at the repo rate. Home loan rates are compared to this. A lower repo rate might lower house loan rates, while an increase will affect EMI. 

What is a Down payment in house hunting? 

Since banks only lend 80%, borrowers must pay 20% of the property value. 20% is down payment. 

Prepayment: 

Prepayment is when you pay off the loan early. Prepaying a floating-rate house loan is free, while banks levy a prepayment fee for fixed-rate loans. 

Foreclosure: 

Repaying the entire loan amount before the loan tenure ends, effectively closes the loan. Foreclosure eliminates all future interest payments. 

Meaning of “Rest”: 

The “rest” term in a loan agreement could be daily, monthly, quarterly, or yearly. At a certain time, the bank recalculates the decrease in the principal amount. This means that even if you pay an EMI every month, your total loan amount will not change until the end of the year if the loan deal allows for an annual break. 

Spread: 

Banks cannot lend below the base rate, so they adjust their ‘spread’ to keep interest rates the same despite market fluctuations. Therefore, the spread is the difference between the benchmark rate and the bank rate. Example: If the base rate is 8.25% and the lender sets the spread to 25 basis points, the home loan will be 8.50%. If the market changes lower the benchmark rate to 8%, the lender will offer the loan for 8.25% at the same spread (25 basis points). 

Loan Default: 

A home loan borrower who misses an EMI for two months must incur a penalty. Wilful default may result in legal action by the bank. 

What is Property Appraisal when you are House Hunting?

The bank will send a team of experts to appraise the buyer’s property of choice to determine its market worth. Regardless of your personal loan eligibility, they would lend up to 80% of this property’s market worth. This protects banks’ interests. 

Loan-to-value ratio: 

LTV compares the loan amount to the property’s appraised value. The bank technical agency determines property value. Despite a large take-home salary, the bank would only lend 80% of the asset value. 

Credit Score: 

Credit agencies provide credit scores to describe your credit profile. India ranks from 300 to 900. Higher credit scores improve lending prospects. 

What is the Circle rate when you are house hunting? 

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 them. 

Stamp Duty: 

State governments charge property buyers stamp duty and registration fees. Thus, registering your property requires paying the government a fraction of its value. Depending on the state, stamp duty charges range from 3% to 10%. Note that women may pay less stamp duty than men. 

Registration Charge: 

This is a primary duty; buyers pay 1% of the property value for registration. After registration, you own a property. 

GST: 

GST is also part of home buying. The government collects this fee from developers selling units in under-construction complexes. This fee is passed on to the customer. 

What is RERA when you are house hunting? 

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 buy a housing society flat, you must pay monthly upkeep for common facilities. These fees vary by housing project size and amenities. 

Sale agreement/agreement to sell: 

Following an agreement reached by a buyer and a seller, they first carry out an agreement to sell, a legal document outlining the terms and conditions that would define the future transaction. The agreement to sell puts terms for the sale in place. 

Sale deed/conveyance deed: 

There is a document called a sale deed or conveyance deed that is made when a property is sold. When this document is signed, it means that the sale has been finished. The buyer owns the property as soon as they sign the sale contract. 

In House hunting what is Token money / earnest money deposit?

An earnest money deposit is the money a buyer gives to a seller to show that he wants to buy the property. A good-faith deposit, also called an earnest money deposit, is usually paid after an offer has been verbally accepted. It is also sometimes called a binder deposit. Once the token money is paid, which is usually a small percentage of the total value, both the buyer and the seller have to follow through on what they agreed to over the phone. The seller could lose this amount if the buyer doesn’t do what they agreed to do. 

TDS: 

Indian law says that the buyer has to take out tax at the source during the deal and give the money to the government on behalf of the seller. 

Mutation: 

After buying a house, the buyer is only officially the owner once his ownership title is recorded with the local government. The name of the previous owner is erased from the records and the new owner’s name is written in. 

What are Common Areas when you are house hunting? 

People who live in a housing society can use the common areas, which are places that everyone can use. In a housing society, the amount paid each month for maintenance also covers upkeep for these places. 

What is Carpet Area when you are house hunting? 

The carpet area is the part of the apartment that you could cover with a carpet. It’s also called the net useful area. Laws from 2016 say that carpet area is “the net usable floor area of an apartment, excluding the area covered by the external walls but including the area covered by the internal partition walls of the apartment.”  

What is the built-up area? 

A flat’s carpet and wall space make up its built-up area. Flats’ build-up spaces include unusable balconies, terraces, flower beds, etc. In build-up area terminology, a flat’s size appears greater. 

What is a super built-up area? 

The super built-up area includes the property’s built-up area and the housing project’s proportionate common facilities. These facilities may include the lobby, elevator shaft, stairs, pool, garden, park, and clubhouse. Developers calculate a unit’s super-built-up space by adding the entire built-up area to the common areas such as the hallway, lift lobby, elevator, etc. Builders sometimes put pools, gardens, and clubhouses in the common space. 

What is Super Area in House Hunting? 

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

RWA: 

Residential welfare associations (RWAs) are formed by housing society members to ensure smooth operation. 

Land Title: 

A land title is an official record of who owns an immovable asset. The buyer must pay stamp duty and registration fees to transfer a land title. 

Frequently Asked Questions:

 How much should I save before deciding on house hunting? 

A person who is house hunting and wants to buy a house should save enough money to cover at least 25% of the total price. They could get a loan for the rest. 

Before you buy a house, what should you not do? 

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

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