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10 tricks for the first-timer home buyer

Author: Padma Venkatraman/Monday, December 1, 2014/Categories: Real Estate

10 tricks for the first-timer home buyer

Taking that first step can be quite unnerving. And you will likely lose those nerves quite a few times in between… for property investment is no child’s play. There is extensive documentation and verification even after you have finalised your property and called in your finances. Here’s listing down a few points, some special secret snacks and wine, to prepare you for your maiden journey!

1) Find out the government rate of land. It is different from market price.

This is the first and foremost step to undertaking a property purchase. While the builder/owner may quote a price depending on the amenities provided in the property, benchmarking the generally perceived cost of land in that particular area, the government has its own rate card. Also known as the circle rate, this government cost is what becomes the base for calculating your compensation in the inopportune moment of an acquisition or takeover of the land by the government. This price varies from place to place, and is occasionally revised by the government to ensure the gap between market price and circle rate is not far too wide. This can be obtained from the local property development office or the sub-registrar’s office.

2) You can register the property only for an amount at par or above the government price; never below

Circle rate is the minimum authority-defined price at which a property sale or transfer can be carried out, and it also determines the associated registration charges and stamp duty levied on such transaction. The circle rate is the 'floor price', which means, you can register your property for a higher value than the circle rate, but never below the government-defined cost of land.

3) Make sure you have all documents required beforehand

Even before you sign the agreement of sale with the vendor, make sure you are in possession of all the requisite documents. In general, these are: (a) Prior Sale Agreements; (b) Encumbrance certificates, mostly from 1980 to the latest; (c) All link documents including any deeds, transfers, any court orders, document executed for general power of attorney, if any, tracing all transactions up to 30 years, and (d) Government approved building plan and development agreement.

Add to this all your personal identification documents such as PAN, Aadhaar, Passport, Licence, address proof, latest six-month bank account statement, three-month payslips, six passport size photographs, any documents regarding other investments such as LIC, PPF, RD, FD, MF etc.

Make four-five copies of all the documents.

4) Stamp duty is levied as a percentage of the price of the property you register

Higher the property value you plan to put on paper, more is the stamp duty and registration charges. This percentage however varies from state to state, and is determined by the respective State Revenue departments.

If the actual transaction price you put on paper is higher than the circle rate, it will attract a proportionally higher stamp duty. This cost is generally borne by the buyer. It is general practice to go to the Sub-registrar’s Office in advance in order to calculate the stamp duty and registration fees payable so that payments can be arranged accordingly and delays/disputes can be avoided on the day of the registration.

5) In some cities, parking space attracts additional cost

Do not forget to inquire about parking space! In some cities, use of parking spaces attracts additional cost on a per square feet basis! The Supreme Court has recently stipulated that car parking spaces (other than those falling under the definition of garage) cannot be sold by the builder, but the practice of it is still in the making. Also, check out the extra costs involved such as for club memberships, maintenance and security.  All such charges received by the builder would generally be subject to service tax.

6) You can apply loan for the amount you plan to register for; most banks provide 80% of the property value as loan

If you plan to apply for a bank loan, remember that while the amount of loan you avail is left to your choice, dependant on your eligibility, the amount cannot be more than the value of the property you plan to register. This means, the agreement of sale, a document you need to submit to the bank while applying for loan, should contain the final decided value of the property for registration. Also, most banks lend only 70-80% of the total property value you declare. Let’s say, you want to register the property for Rs 50 lakh, then, the agreement of sale will contain the value of the property as Rs 50 lakh, and the the maximum loan the bank will give you is 80% of the that amount, i.e., Rs 40 Lakh.

7) Make sure to get legal opinion from your bank-approved advisor before applying for loan

This is one stage that no one tells you beforehand but can save you a lot of time and tension later. Contact your branch manager and seek out the legal counsel for the bank. Approach the advisor with all the property-related link documents. He/she will charge you some money, but will be able to tell you if the property is in good order from a legal perspective, and inform you if any further documents are to be procured for application for the loan. Performing this step earlier will ensure that you are prepared with all the documents, and the advocate provides his legal opinion to the bank quicker when you do apply for the loan.

8) Make sure to contact bank-approved civil engineer for his report before applying for loan

Similar to the prior stage, but not that urgent, the bank will assign a civil engineer to visit the property being purchased for valuation of the property and to calculate the residual life of the building. The civil engineer will ask for the government approved building plan, the development copy and the agreement of sale you have entered into with the seller. They may click photographs of the home, and that is normal practice.

9) Make a list of your assets and liabilities

As a first-timer, you may have prepared all the property documents, and filled in the loan application form with ease… until you get to the “Assets and Liabilities” declaration form. Well, nobody tells you upfront that you need to have a ready reckoner with proof! So yes, prepare a list of your bank deposits (SB, FD, RD, etc.), any loans you have availed earlier, any pending payments, investments (LIC, PPF, MF, etc.), and take copies of receipts or statements as proof. Also include any jewellery/vehicles you own/were gifted. This is not for tax evaluation, but rather is a security measure for the bank to feel assured about getting back the loan it may lend to you. In that sense, it is not mandatory to declare everything you got, but fill in the basic few.

10) Patience is virtue, and also, most banks disburse loan amount as a Demand Draft

If compilation can take so long, imagine how long verification and processing will take! While banks do assure quick disbursal of loans, be prepared to sit tight for up to a month. This means that you need to pre-plan and ensure you give the bank time and the seller enough notice, and enter into the agreement of sale accordingly with regard to the expected date of registration when you will need to make the final payment to the seller. Also remember, the general method of loan disbursal is through a demand draft in the name of the seller for the loan amount. It is the rest of the transaction amount (20% of registered property cost + differential to the transaction value) that you will have to arrange, payable in cash or cheque, as per your negotiation with the seller.

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