Customer awareness

Customer Corner

Customer awareness

Customer Corner

Customer Awareness

Must Know these term before buying a home are:
  1. Carpet area
  2. Built-up area
  3. Saleable Area/ Super built-up area
  4. Loading
  5. Per square foot rate
  6. Stamp Duty and Registration Fee
  7. Some important terminology/documents you should know while buying the homei.e.a) Mutation/Khatian Certificate, b) Allotment Letter, c) Possession, d) Occupation Certificate (OC), e) Completion Certificate (CC), f) Fit-out Period, g) Builder Buyer Agreement (BBA) and h) No-objection Certificate(NOC)

Carpet area is the area enclosed within the walls of your flat. It refers to the area inside your house on which you can actually lay a carpet and physically move around. But that’s not all. The carpet area also includes a certain percentage of other areas – such as balcony, terrace and veranda – which many people tend to exclude from their calculations.

Depending upon your builder, the carpet area of your flat can be anywhere from 50-80% of the super built-up area (explained below) quoted to you by your builder. Therefore, you should always ask your builder for the ratio of carpet area to the super built-up area. The higher the ratio of carpet area to super built-up area, the more space you get inside your flat.

What is the RERA carpet area?
“Carpet area” under RERA means the net usable floor area of an apartment, excluding the area covered by the external walls, areas under services shafts, exclusive balcony or verandah area and exclusive open terrace area, but includes the area covered by the internal partition walls of the apartment. Explanation— For the purpose of this clause, the expression “exclusive balcony or verandah area” means the area of the balcony or verandah, as the case may be, which is appurtenant to the net usable floor area of an apartment, meant for the exclusive use of the allottee; and “exclusive open terrace area” means the area of open terrace which is appurtenant to the net usable floor area of an apartment, meant for the exclusive use of the allottee

Built-up area is the total area measured on the outer line of your flat, including balcony, terrace, etc. It refers to the usable (or carpet area as described below) of your flat plus the area occupied by the walls and columns of your flat plus a little more. In other words, the built-up area will normally also include a percentage of:

  • Balcony and/or Terrace
  • Roof area
  • Mezzanine floor
  • Detached habitable areas such as servant’s room, etc.
  • Columns and Walls
  • If shared with another unit – computed at 50%
  • If not shared with another unit –computed at 100%

Now that you know that the built-up area of your flat includes these additionalareas, you will be able to calculate the actual usable or carpet area of yourflat.

Super built-up area or saleable area is the total built-up area of your flat (explained above) plus your proportionate share of the common amenities in your building complex. It is also called the saleable area. Proportionate share here refers to the sum total of all common areas divided by the total number of flats in your building complex. So the super built-up area includes – aside from the built up area of your flat –these areas also:

  • A percentage of the double height areas and terraces, if any
  • Entrance Lobby
  • Corridors
  • Staircases
  • Lift Shafts
  • Lift Lobby and all other lobbies and landing areas
  • Lift machine rooms, generator rooms, electrical rooms, etc.
  • Gas Banks, Garbage Rooms
  • Club House
  • Security Rooms
  • Indoor Sports Rooms
  • General Toilet Facilities for Servants and Maintenance Staff
  • All other common areas not included above provided they are not separately charged for

The Super Built-up Area Does Not Include…

  • Underground sumps and water or septic tanks
  • Compound walls
  • Open to sky walkways and open to sky swimming pools
  • Open sports facilities
  • Weather sheds, inaccessible flower beds, lofts, common open to sky terraces, stairwells, etc.

If you find that your builder has included any of these areas in the super built-up area, you should immediately bring it to his notice – and renegotiate your buying price.

Loading is the difference between the super built-up area and the Build-up area of your flat. It is used to add constructed spaces not exclusively allocated to you. It includes shared areas like lifts, lobbies, staircases and amenities, as well as a part of your terrace and balcony.

Loading factor of 1.33 means that your builder has added 33% to your Build-up area. If your residential project does not have many amenities, the loading factor will be small. In most cases, a loading factor of 1.30 to 1.35 is considered sufficient. However, you should know that some builders can resort to very high loading – of 40-50%. This can seriously reduce the Build-up area of your flat to substantially of its quoted size. Therefore, it always pays to know in advance the loading factor of your flat.

Per Square Foot Rate is the rate (per square foot) quoted to you by your builder or Real Estate developer. It is typically applied to the super built-up area/ Saleable Area to determine the price of your flat. The important thing to remember here is that the per-square-foot rate of your flat is normally based on the super built-up area (also called saleable area), which includes not only the carpet area of your flat (i.e. the usable area inside your flat) but also some additional areas of (I) your flat (like balcony and terrace area) and (ii) building complex (like lobbies, staircases, passages, etc.).
Stamp Duty and Registration Fee are the taxes that are implied by the Government on the purchase of property. It is very important for the home buyer to know the stamp duty charges and registry charges before applying for the home loan. Property registry charges and stamp duty charges vary from state to state so before planning your property buying budget you must know these charges. Stamp duty also varies depending upon the genders.
It is a revenue document containing all the details of the property such as location, size, built up area etc. This certificate is a part of the home buying process and is required to pay the property taxes.
If you are buying an under construction property, this letter is most important for you. The letter contains all the details related to flat payment periods and hidden& extra fees for any additional facilities. This letter also helps in getting a home loan from banks.

These are the some important Terminology/ documents that one must be aware of:

  1. Mutation /Khatian Certificate: It is a revenue document containing all the details of the property such as location, size, built up area etc. This certificate is a part of the home buying process and is required to pay the property taxes.
  2. Allotment Letter: If you are buying an under construction property, this letter is most important for you. The letter contains all the details related to flat payment periods and hidden& extra fees for any additional facilities. This letter also helps in getting a home loan from banks.
  3. Possession Letter: This letter is provided by the builder with a mentioned date of property possession to the buyer. It is not a proof of property ownership to the home buyer. This letters given to the buyer after the receipt of the Completion Certificate.
  4. Occupancy certificate (OC):Occupancy certificate is an important document showing that the building has been constructed according to the permissible plans and by abiding local laws. The local municipal corporation issues this document after ensuring that compliance of all local laws has been done. The builder is responsible for obtaining the occupancy certificate. Many financial institutions ask for the occupancy certificate while providing loans to the buyers of property.
  5. Completion certificate (CC):A completion certification is a mandatory legal document stating that a newbuilding has been constructed and completed according to all the safety norms and regulations and local laws of the Buildings Act.
  6. Fit out period: Fit out Period is the amount of time granted to occupants by developer (cost-free unless otherwise stated) to customize the home interior according to their personal preference. The base is completely constructed by the developer butthe interior can be fitted by the occupants or the former.
  7. Builder Buyer Agreement (BBA) The builder buying agreement is an immensely important legal document between the buyer and the builder. Before buying any property be it for residential or commercial use, buyer should read and understand the terms and conditions mentioned in the agreement very carefully so that the buyer’s rights are protected and he/she gets exactly what they paid for. This is a legally valid document and will help the buyer in defending his/her rights in case of any mis-happening.
    It contains the following provisions:-
    1. Construction timeline
    2. Price escalation cost
    3. Area change
    4. Payment delay
    5. Payment on actual cost basis
    6. Building plan changes
    7. Transfer changes
  8. No Objection Certificate(NOC)

    A no objection certificate is a legal document containing a statement of permission granted to an individual or company for buying or construction of a property.

    1. NOC from Builder: When buying a property or an apartment a NOC is required from the developer or society respectively to ensure that there is no due on the property by the seller at the time of the sale of the property and to ensure seamless induction of the buyer into the society. The buyer must ensure that NOC given to him/her has the following points mentioned:
      • Name & Address
      • Authenticity of the NOC
      • Nature of transaction
      • Payment Detail
    2. NOC under RERA: The builder requires written consent of at least 2/3rd of the allottees if he wants to transfer his rights and liabilities to a third party. After that, permission of the Real Estate Regulatory Authority (RERA) needs to be obtained which is very important.
    3. NOC for Foreigners: Undersea, any individual who is of non-Indian origin can purchase or transfer real-estate property in India on lease beyond five years and can acquire real estate property in India by way of inheritance from a resident. All the transactions in this particular case will require prior permission from the Reserve Bank of India (RBI).

Home Loan

Yes, you can avail of a Home Loan. List of Housing Finance Institutions (HFIs) as follows:-
  • HDFC Ltd
  • ICICI Bank Ltd
  • Axis Bank Ltd
  • LIC Home Finance
  • SBI
  • PNB
  • Indian Overseas Bank
You can generally seek a home loan for buying a house or a flat. Even if you are having your existing house, you can seek a home loan for purchase as second home. Most banks have a separate policy for those who are going for a second house. Please
Payment schedule is normally connected to the construction schedule. However, for ready-to-move-in flats, company requires the remaining 90% of down payment (10% is the booking amount) within the 30 days of booking.
Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse’s income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.

The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants.
You repay the loan in Equated Monthly Instalments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement.
In addition to all legal documents relating to the house being bought, banks will also ask you to submit Identity and Residence Proof, latest salary slip ( authenticated by the employer and self-attested for employees ) and Form 16 ( for business persons/ self-employed ) and last 6 months bank statements / Balance Sheet, as applicable . You also need to submit the completed application form along with your photograph. Loan applications form would give a checklist of documents to be attached with the application.

Banks generally offer either of the following loan options:

  • Fixed Rate Home Loans: For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. Hence, the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to plan for.
  • Floating Rate Home Loans: The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and the spread. The index is a measure of interest rates generally (based on say, government securities prices), and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. Conversely, if the interest rate moves down, your EMI amount should be lower.

Also, sometimes banks make some adjustments so that your EMI remains constant. In such cases, when a lender increases the floating interest rate, the tenure of the loan is increased (and EMI kept constant).

Maximum of 20 years is provided to repay a loan. You have the option of selecting a term you are comfortable with, up to 15 years. The term does not extend beyond retirement age or on your reaching 65 years of age whichever is earlier.
The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive.
This is a table that gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time. It also shows the gradual decrease of the loan balance until it reaches zero. (See annex)
Sometimes loan is disbursed in instalments, depending on the stages of completion of the housing project. Pending final disbursement, you may be required to pay interest only on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI.

However, many banks offer a special facility whereby customers can choose the instalments they wish to pay for under construction properties till the time the property is ready for possession. Anything paid over and above the interest by the customer goes towards Principal repayment.
The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also.

Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely).
You can include your spouse as a co-applicant for the home loan and we shall include his/her income to enhance your loan amount. Further, in case there are any other co-owners, they also need to be co-applicants.

Give yourself comfortable time. Do not hurry your purchase or loan in any case. Shopping around for a home loan will help you to get the best financing deal. Shopping, comparing, seeking clarification and negotiating with banks may save you thousands of rupees.

  1. Obtain information from several banks

    Home loans are available from mainly two types of lenders–commercial banks and housing finance companies. Different lenders may quote you different rates of interest and other terms and conditions, so you should contact several lenders to make sure you’re getting the best value for money.

    Find out how much of a down payment you are required to pay, and find out all the costs involved in the loan (including processing fees, administrative charges and prepayment charges levied by banks). Knowing just the amount of the EMI or the interest rate is not good enough. Similarly, ask for information on loan amount, loan term, and type of loan (fixed or floating) so that you can compare the information and take an informed decision.

    The following is some important information that you will require.

    1. Rates: Ask your lender about its current home loan interest rates and whether the rate is fixed or floating. Remember that when interest rates in the economy go up so does the floating rates and hence the monthly re-payment.
    2. Reset Clause: Check the reset clause, especially in the case of fixed interest rate loan as the rates will not be fixed throughout the tenure of the loan.
    3. Spread/Mark up: Check if the margin in the case of the floating rate is fixed or variable. The rate of interest you have to pay will vary accordingly.
    4. Fees: A home loan often requires payment of various fees, such as loan origination or processing charges, administrative charges, documentation, late payment, changing the loan tenure, switching to different loan package during the loan tenure, restructuring of loan, changing from fixed to floating interest rate loan and vice versa, legal fee, technical inspection fee, recurring annual service fee, document retrieval charges and pre-payment charges, if you want to prepay the loan. Every lender should be able to give you an estimate of its fees. Many of these fees are negotiable / can be waived also.
    5. Down Payments / Margin: Some lenders require 20/30 percent of the home’s purchase price as a down payment from you. Ask about the lender’s requirements for a down payment and also negotiate with him to reduce the down payments.
  2. Obtain the best deal

    Once you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal. Ask the lender to write down all the costs associated with the loan. Then ask if the bank will waive or reduce one or more of its fees or agree to a lower rate. Do make sure that the bank is not agreeing to lower one fee while raising another or to lower the rate while raising the fees. Ask for clarification in case you do not understand any particular term. All banks are obliged to explain the most important terms and conditions of the home loan in detail.

    Once you are satisfied with the terms you have negotiated, please do obtain a written offer letter from the lender and keep a copy with you. Read the offer letter carefully before signing.

Yes, most banks allow you to repay the loan ahead of schedule by making lump sum payments. However, many banks charge early repayment penalties up to 2-3% of the principal amount outstanding. Prepayment penalty may vary according to the reasons and source of funds – if you obtain a loan from another bank for pre-payment the charges are usually higher than when you pay from your own sources. However, you may credit more than your EMI amount into your loan account on a periodic basis and bring down your interest burden as and when funds are available with you. Most banks do not charge a pre-payment penalty if you deposit more than your EMI payable on a periodic basis. Please check such stipulations while availing the loan.
When other banks reduce the interest rate, you may prefer to close your account with the bank with whom you are banking, to avail of the loan from the bank offering reduced rates of interest. You have to pay pre-payment charges for doing so. In order to ensure that their customers do not approach other banks for availing reduced interest rates, banks allow customers to switch over from a higher interest loan to a lower interest loan by paying a switch over fees which is lesser than the pre-payment charges. Generally switchover fee is taken as percentage of the outstanding loan amount.

Keep up-dating yourself on various changes in the home loan market. Visit the branch, discuss with the officials to get the best out of any changes in the home loan scenario.

It is important not to sit back and relax after you have paid the last equated monthly instalment of your home loan. There are a few steps you should follow to ensure that your account is closed properly and all the necessary documents are handed over to you.

Here are the necessary steps you should take:

  1. Do not forget to collect all your original documents from the lender

    A lot of original documents are submitted when you apply for a loan. These include the registered sales deed of the house/flat, the initial agreement with the vendor for sale of the property, home loan agreement with the bank, prior sale deed/s of the property in case you are not the first owner of the property, the original document of the power of attorney, in case the property was sold through a registered power of attorney, to name a few.
    Normally, the lender will have a list of all the documents taken from you.
    While receiving these documents, check each and every page, and tally them with the photocopies you have. This process may seem tedious and redundant, but there’s no harm in being cautious.

  2. Take the no objection certificate from the lender

    This document supports the fact that the loan has been fully paid according to the terms of the lender. It’s a legal document to prove that the lender no longer has rights over the property. It may also prove useful in case you are selling off the property.

  3. Take away the lien with the registrar office

    The lender may record the lien on the property with the registrar office. If they have done so you may request them to take way the lien after closing the loan. Else, at the time of selling the property, this lien in record will come in the way of selling your property. If the lender delays in doing so, you may with the help of the NOC remove the lien.

  4. Updating your information at the Credit Information Bureau of India Ltd

    Once your home loan is fully paid off, it is important to update this information at CIBIL. This will help improve your credit rating. While the lender will usually send this information to CIBIL, it’s always better to follow up and cross-check this information. Otherwise, you may face difficulties the next time you want to take a loan.

Income tax benefits and deduction you must know before buying a house

Home loans are the cheapest loans available in the market. May be Govt. has sniffed that, in India Real Estate is quite costly and owning a home is the most important part in each of our lives.

Resident Indians are eligible for certain tax benefits on both principal and interest components of a loan under the Income Tax Act, 1961. Under the current laws, you are entitled to an income tax rebate for interest repayment under Section 24(b) of the Income Tax Act up to Rs.2,00,000 /- per annum. Moreover, you can get added tax benefits for deduction under Section 80C on repayment of principal amount up to Rs. 1,50,000 /- per annum.

Tax implication on property and loan in Joint Name: While purchasing property, you can opt for a joint loan with your spouse. Under the Income Tax Act, taxbenefits are available on home loans and the interest paid on them. In case of joint loans also, all the co-borrowers can get tax benefits. The maximum limit of tax rebate for interest repayment under Section 24(b) of the Income Tax Act up to Rs.2, 00,000 /- per annum with the added tax benefits for deduction under Section 80C on repayment of principal amount up to Rs. 1,50,000 /- per annumwill apply individually to both of you (i.e. the total deduction will be limited toRs.4,00,000 and Rs.3, 00,000 respectively). It needs to be ensured that both should be co-owners of the property. A co-owner of a house must be a co-borrower as well. It is essential for a co-borrower to be a co-owner in order to claim tax benefits. You cannot get tax benefits if you are only a co-borrower and not a co-owner.

Co-borrowers, who are also co-owners, are eligible for the tax rebate in the proportion to their share in the loan. The repayment capacity of each spouse will be taken into account while arriving at the share of the loan. The shares of the loan may be in any ratio. The tax benefits would be shared in that proportion only. You have to specify the share of the property and other loan details on a stamp paper.

In case a husband and wife pay Rs.360 000 as interest and Rs. 280,000 as principal, each and if they has an equal share in the borrowing, and each can claim Rs. 180,000 towards interest (subject to maximum of Rs. 200,000) and Rs. 140,000 towards principal(subject to maximum of Rs. 150,000) in their respective income tax returns. This deduction would apply to each borrower.

In case one of the co-owners does not have any income, the other co-owner should enter into an agreement with the spouse. The agreement should state that the entire repayment is met by only one borrower’s income. This would ensure that the main applicant will have 100% beneficial home ownership, and consequently, he can avail all the tax benefits applicable to a single borrower.

Each borrower needs a copy of a borrower’s certificate. It has to be provided to claim their respective tax relief. A co-borrower should enter into a simple agreement with the spouse on stamp paper of Rs.100.

This agreement should basically contain the shares of the ownership along with that of the home loan availed by the couple.

The borrowers should take two copies of the interest and principal paid certificates from the bank and each can submit a copy of the certificates along with a copy of the agreement signed between them.

Tax Planning on Pre EMI: Pre EMI is the interest paid to the bank/NBFC for partial disbursement till you get the possession of your property. You can use the home loan for tax saving only when the construction is completed. Pre-EMI is paid till the house is under construction. So, you cannot use the pre-EMI as the tax deduction source. Once the construction is completed, the total pre-EMI interest paid is shown in the five equal instalments in the subsequent five years.

For example, Mr. A purchased a property in 2018-19 and got possession in 2022-23. if Mr. A have paid Rs. 180000 as the pre-EMI (irrespective of the construction tenure of home), i.e. from 2018-19 to 2021-22 then Rs. 36000 will be shown in the next five years as tax deduction from 2022-23. Note that the upper limit on deduction each year remains Rs. 200,000. Note that pre-EMI is only the interest paid during the period. If you have paid any principal amount, that is not eligible for the tax deduction. The principle amount which was repaid during home was constructed is lost forever, and will never give you any tax benefit.

Example: If my house is completed in December 2022 then you will get tax benefits for the financial year April 1, 2022 to March 31, 2023. The entire interest paid in this financial year will be eligible for deduction under Section 24, irrespective of whether the interest pertains to the period from April to December 2022 (when the property was under construction) or post- January 01, 2023 (when the construction was complete).

Tax implication on under constructed property: Tax implication for an under constructed property will be same as a pre-EMI scenario as explained. All the interest paid during the construction of home will be aggregated and one-fifth of this aggregated amount shall be allowed as a deduction along with the interest for the current year.

If the construction of the property is not complete by March 31 of the financial year, then no benefit is available for that financial year. In fact, in such cases, the deduction in respect of principal paid during the years in which the construction is not complete is lost forever as, unlike for interest payable, no similar provision for aggregation of principal exists.

Second Homes: How they are treated for tax:
If Manish lives in Mumbai and has purchased a home in Mumbai for which he has taken home loan. Will he still get benefit under the Act for this second home in Kolkata?The answer is ‘Yes’.

Here we have to understand how the Income tax act/sections work and how are their conditions. You could get the benefit of Section 80C (for Principal component) and Section 24(b) (for interest component) can be taken for more than one home if all these homes satisfy the requirements of the Act.

Manish has to declare the home in Mumbai satisfies the condition of self occupancy while the home in Kolkata comes within the exception of the self-occupancy rule that the city of work is different. But understand that, Irrespective of the number of homes the maximum limit of Rs.150,000 for Section80C and Rs.200,000 for Section 24(b) still apply. Note that it does not matter if Manish gives one home on rent. He will still be able to get the tax break.

  • Deduction under Section 80C of the Income Tax Act: A maximum of 150,000 per year of principal repayment can be availed as deduction from gross total income under this section. The Act requires the home loan to be towards a property for self-occupation. However if the assesses city of employment is different from the city where he has purchased a home, he is still eligible for this deduction. So if Manish works in Mumbai but has purchased a home in his hometown Kolkata, he can still claim a deduction under this section even if he is not actually staying in this home.
  • Deduction under Section 24(b) of the Income Tax Act: A maximum of 200,000 per year of interest repayment can be availed as deduction from salary.