The home-buying process
This process is broken up to three main sections: budget, home loan and searching for the exact home
Section 1: THE BUDGET
First of all, assess your post-tax monthly income, deduct tax saving contributions. Similarly, do so for other earners in the family.
Next, provide for credit card debt and other loan payouts, as also provide for monthly household expenses. After this, set aside around 5% for contingencies.
Add up the savings you will need to put down your contribution of 10-15% as Housing Finance Companies will fund only between 85-90% of the property value.
Now check if you have enough for the EMIs plus maintenance expenses. Don't forget to budget for the tax breaks you get on your loan repayment. Typically, lenders will ensure your EMI's doesn't exceed 50% of your take-home pay, post-taxes and other deductions.
Section 2: THE HOME LOAN
Screen lenders on total financing cost and convenience.
Get pre-approvals from short-listed lenders.
Check out property fairs for better rates
Check if your employer has a tie-up with a lender, corporate discounts can lop off more than 1% in interest alone
Today, lenders are vying for customers, so play them hard against each other for the best bargain.
Get a list of pre-approved properties from lenders. Borrowing will be a breeze if the property you zero in on is on your lender's list.
Step 3: THE SEARCH
When you go house-hunting, consider:
How far you'd be from place of work
How far the home would be from your kids’ school
How far you'd be from reliable medical help
The quality of civic amenities (water, electricity, waste disposal etc)
How accessible social amenities like markets, clubs and parks are.
Now, the reality of life is that the ideal in the list given above may not match your budget. So, now you need to match your budget with your requirements and what's available - and make the necessary trade-offs.
To know what's available, scour advertisements, ask friends and neighbours, and check out property fairs.
Once you have a short-list of projects, check the past record of the builder and visit their completed projects
Important points to keep in mind while buying your home
These are points that are more from a practical aspect rather than fiscal or legal
About the locality, watch out for proximity to workplace, educational institutions, hospitals, shopping areas, entertainment centres, transportation, and pollution levels etc.
Quoted area of the flat i.e. compare whether it is carpet, built up area or super built up area. Understand the difference – ask your builder/ developer to explain.
Car parking space: whether compulsory to be bought or open to home buyer’s needs, more than one slot required by a family, whether parking slot is stilt/ open/ covered/ podium parking.
Quality of construction
Reputation of the builder or seller
Sufficient water and electric supply, as also other utilities
Cost components: price, stamp duty, registration charges, transfer fees, maintenance charges, any other payments
Appreciation of the property value in terms of resale value, and/ or rental value.
Any other distinguishing features or advantages of the property
Documents and checklist while buying a home
List of all the important documents one should check; and the checklist before buying any property
If you want to purchase a property, you have to look at the approved layout plan, approved building plan, ownership documents, carryout search, etc. Contact an advocate before you purchase a property so that he can advise you.
This is a checklist: when buying commercial or residential property you would need to check for the following documents/ information:
Before you start on documents, you need to understand market trends; identify the exact property you want to buy and formulate the commercial terms.
Market Trends is all about prevalent rates of property in the vicinity and last known transactions, so you do not pay too much for your home.
Identify the property you wish to purchase, from all aspects – funding, requirements in present day as also future.
Formulate commercial terms, put everything in writing as far as possible..
Distinguish between terms and conditions of the contract which are negotiable and those which are fixed - e.g. price, payment schedule, time of completion etc.
Avail of services of a helping hand like My Homes. List your requirements with us.
Ask for photocopies of the all deeds of title related to the property to be purchased.
Examine the deeds to establish the ownership of the property by seller, preferably through an advocate.
Ascertain the survey number, village and registration district of the property as these details are required for registration of the sale.
Previous encumbrances and loans, if any, on the property must be cleared before completion of purchase of the property.
The Title of the Vendor to the property must be clear and marketable.
Finalise commercial terms of purchase of the property. Ascertain transfer fees, stamp duty and registration charges to be paid on purchase of the property.
Ascertain outgoings to be paid for the property i.e. property tax, water and electricity charges, society charges, maintenance charges.
Request Vendor to obtain, if applicable, consent, permission, sanction, no objection certificate of various authorities such as the (a) society (b) the income tax authority (c) Municipal Corporation (d) the competent authority under the Urban Land
Ceiling and Regulation Act (e) any other authority.
If you require a loan for the home, ask for a pre-approval letter from the lending institution.
Permanent Account Number of Vendor and Purchaser is necessary under Income Tax laws
Payment of stamp duty on the formal agreement or document for transfer of the property, signing by both the Vendor and Purchaser and registration
After payment of the entire sale price, take over legal possession of the property along with documents of title in original from the Vendor of the property
Change name of the holder of the property to the purchaser in the records of the society, electric supply company, municipal corporation, Index II etc.
When buying a flat from a builder in a building under construction, you have to check the following
Verify the approved plan of the building, along with the number of sanctioned floors.
Verify whether the floor on which you are buying a home on is approved.
Whether the land on which the builder is building is his; or he has undertaken an agreement with a landlord. If so, check the title of the land ownership with the help of an advocate.
Check the building byelaws as applicable in that area and ensure that the builder is building without any violation of front setback, side setbacks, height, etc.
Check if the specifications given in the agreement to sell of the sale brochure match the ground reality or not.
In locations where Urban Land Ceiling (ULC) NOC is applicable, check whether the same has been obtained.
Whether an NOC from water, electricity and lift authorities have been obtained.
If you are buying a new flat
Firstly the Purchaser has to enter into a Registered Agreement of Sale with the Builder and pay the requisite margin money. Then he has to approach the Financial Institution and collect the necessary details including application form from them.
On application, copy of registered agreement, registration receipt, receipt of payments made and NOC from Builder have to be handed over to the Financial Institution.
In case of purchase of a new flat, loan will be disbursed in instalments depending on stage wise progress of work.
Requirements for Salaried Applicants:
Employer's salary certificate in requisite format/and latest salary slip.
TDS certificates, ESIC/ PPF certificate
Requirements for Businessmen / Self-employed
3 years IT returns together with P/L account, etc duly certified by a Chartered Accountant
What is an EMI?
You repay the loan in the form of Equated Monthly Instalments (EMIs) which is made up of 2 parts- principal and interest. Loan repayment EMI begins from the month in which you take full disbursement.
What is pre-EMI interest?
Pending final disbursement, you pay interest 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 upto the date of commencement of EMI. Some Financial Institutions, on you request, could consider to start the EMI before the loan is fully disbursed.
What are the different interest rate options available?
Floating Rate of Interest- the Rate of Interest is reviewed periodically every six months based on the prevailing market conditions and RBI policies. The revised
Floating Rate of Interest could increase, decrease or remain the same.
Fixed rate of Interest- The Rate of Interest ordinarily remains the same throughout the term of the loan.
2 in 1 rate of interest- This Home Loan provides customers with a choice of breaking up the loan requirement into Floating and Fixed Rate loans.
What is the method of calculation of Interest Rate?
Methods of calculation would include
- Flat Rate - Total interest calculated for the term and then divided by the number of months
- Reducing Balance (monthly/Quarterly/Annually)- Compounded
Can I repay my loan ahead of schedule?
Yes, you can repay the loan ahead of schedule but some companies have prepayment charges.
How much does a Housing Finance company lend?
Loan amount is determined on the basis of the repayment capacity of the applicant/s. Repayment capacity takes into consideration factors such as age, income, dependents, assets, liabilities, stability of occupation and continuity of income, savings etc. The maximum loan varies from company to company. Most companies extend loans upto 85 % of the cost of property (including Stamp duty, Registration charges, and other govt. charges).
What is the period for which one can get a Loan?
The maximum period of the loan is 20 years subject to age of retirement or completion of 70 years whichever is earlier.
What Is Security For The Loan?
The security for the loan is the first mortgage of the property to be financed by way of deposit of the title deeds, subject to local laws. Guarantors are usually asked for.
Does the applicant get a tax benefit on the loan?
Resident Indians are eligible for certain tax benefits on principal and interest components of a loan under the Income Tax Act, 1961. Interest repayment of Rs. 1,50,000 p.a. can get you a tax saving upto about Rs. 50,490 p.a. Moreover, you can get added tax benefits under Sec 80 C on repayment of principal amount upto Rs. 1,00,000 p.a. that can further reduce your tax liability by about Rs. 33,660 p.a.
Market value, Stamp duty, Registration
Market Value means the price at which a property could be bought in the open market on the date of execution of such instrument. The Stamp Duty is payable on the agreement value of the property or the market value, whichever is higher.
Stamp Duty is a tax, similar to sales tax and income tax collected by the government, and must be paid in full and on time. A stamp duty paid instrument/document is considered a proper and legal instrument/document.
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.
Formalities: Formalities and forms may vary from State to State depending on where the property is situated.
Every State has its set forms under the Registration Rules that are required to be filled and filed along with and at the time of Registration of Sale Deed/Transfer Deed.
Time limit for registration: The property agreement should be registered with the Sub-registrar of assurances under the provisions of the Indian Registration Act within four months of the date of its execution.
From the point of view of taxation no special formalities are required for completing while buying the property. However, proper Agreement to Sale etc. must be done and the ownership and the title should be verified to ensure that one does not have a problem at a later stage in respect of such property.
Under the provisions of the Income Tax Act and Rules for a transaction of sale, it is now compulsory for the Purchaser and Seller to give their Permanent Account Number and in the event of either the Seller and/ or the Purchaser would be required to fill Form 60 of the Income-Tax Rules.
CAPITAL GAINS TAX
For the purpose of Real Estate, the Long-term Capital gain would be only if you hold the property for more than three years, then it is subjected to tax @ 20% only.
In case you sell the property in less than three years time then it would become short-term Capital Gain and the same is required to be taxed at the prevailing tax schedule of the rate applicable to the assessee depending on his other incomes.
It may also be noted that if a person has claimed deduction U/s 80C in respect of repayments of Principal on the housing loan or stamp duty registeration charges etc. and such person sells the house within 5 years from the end of the financial year in which such house was purchased then deduction so claimed U/s 80 C in respect of this house will be deemed to be the income the said assessment year in which the house is sold and the same will have to be offered for tax.
There are innumerable ways and options available for saving Long capital gains tax. For example, invest the Long term capital gains in a residential house property or a flat to claim complete deduction U/s 54 of the Income Tax Act. Likewise, if a person were to investment the Long Term Capital Gains in REC or NHAI bonds or such bonds as may be specified by the CBDT from time to time U/s 54EC then the amount so invested would be allowed as adeduction from the Long Term Capital Gains.
In case of a person not having taxable income or who is not assessed to Income Tax is required to file Form 60 with the registering authority.
FOREIGN CITIZENS OF INDIAN ORIGIN
Formalities that need to be completed by foreign citizens of Indian origin for purchasing residential immovable property in India under the general permission: they are required to file a declaration in for IPI and with the central office of Reserve Bank at Mumbai within 90 days from the date of purchase of immovable property or final payment of purchase consideration, along with a certified copy of the document evidencing the transaction and the bank certificate regarding the consideration paid.
Leasehold & Freehold properties
Leasehold properties (plot/built-up) are those in which perpetual leasehold has been granted by the title paramount in favour of the lessee. In such properties, the title paramount, i.e. President of India acts through DDA, L&DO, Leasehold properties are not freely transferable. Depending upon the covenants of the lease deed, prior permission of the lessor (DDA/ L & DO) is required to transfer the property.
Freehold properties are those where title paramount has conveyed the property in favour of the purchaser by conveyance/sale deed with no restriction on the right of the holder of the property to further transfer the property. Record of ownership of the freehold property can be ascertained from the office of the sub-registrar. It can be transferred by registration of sale deed.
Income from house property
Broadly speaking, this would be as under:
Actual rent received from property
Less: House Tax to the extent actually paid by the assessee
Balance: i.e. Annual Value
(1) 30% of the annual values
(2) Actual Interest in respect of loan for the property
Net taxable income from house property
The above-mentioned formula would enable most of readers claim correct deduction in respect of income from house property.
What adds up?
Interest paid during the construction period would enjoy tax benefit in total five years as per Section 24 of the I.T. Act, 1961. The Loan processing fee, the brokerage, the stamp duty can be added to the cost of the property. The misc. expenses if they can be attributed directly to the purchase of the property then they would form part of the cost of the property.
Ownership, as per it laws
Ownership, for Income-Tax purposes, would be when one receives the possession. Even if payment is not made but possession is received, it will be treated as a sale transaction. COMPLETION OF SALE The transfer of a flat is concluded when you have a sale deed/ agreement for sale coupled with actual possession. Generally, in all cases the entire amount is paid simultaneously with the handing over of physical possession and signing of the transfer documents.