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  • Real Estate Terms Every Home Buyer Must Know

    Buying a house is not exactly a walk in the park for many people, especially if home loans are involved. Many terminologies confuse a person to the extent that they may end up making a wrong decision with regard to purchasing a home, simply because they do not understand what it means.

    Mentioned below is a list of real estate terms that may come in helpful for a homebuyer.

    • Buyer’s agent – A buyer’s agent in other words is a real estate agent. The agent is in charge of helping you avail an ideal house. In return, the homebuyer pays the agent a percentage of the sale as fees.
    • Listing agent – A listing agent is an agent representing the seller of a particular house. They are in charge of selling homes. A listing agent in this modern day and age may also be online portals where one can list a house for sale.
    • Preapproval letter – A preapproval letter is a letter provided to you by a bank giving you an estimate of how much they will be able to lend you. This letter is usually sent out after one applies for a home loan. This letter, in a way, assures sellers that you will be able to avail the loan.
    • Listings – In simpler terms, listings is merely houses that are for sale. These houses may be listed in newspapers, websites, etc., therefore the term ‘listings’.
    • Appraisal – An appraisal is process of monetarily evaluating a house after a licenced appraiser has inspected it.
    • Fixed rate of interest – A fixed rate of interest is when interest rates on a home loan doesn’t alter throughout the entire tenure of the loan.
    • Floating rate of interest – Contrary to fixed rate of interest, floating rate of interest is when the interest rates on a home loan may vary from time to time during the tenure of a housing loan. These changes are in correspondence with interest rates that are prevailing in the market.
    • Margin – With regard to real estate, the term ‘margin’ is synonymous with the term ‘down payment’. In essence, margin is the difference between the total value of the property and the total loan amount that the bank provides towards the purchase of this property. As per the Reserve Bank of India (RBI), a bank may not provide more that 80% of a property’s value as home loan. The homebuyer must make a down payment of at least 20% of the property’s value.

      For instance, if an individual wishes to purchase a property/house worth Rs.80 lakh, the bank is allowed to give you a maximum loan amount of 80% of the value. The margin of 20% will have to be paid by the individual. This means that the bank is allowed to loan you Rs.64 lakh and the individual will have to make a down payment of Rs.16 lakh. Rs.16 lakh is the margin in this instance.

    • Offer letter – This is an official confirmation letter sent out by the bank recognising you as an eligible customer for a home loan. This is sometimes referred to as sanction letter. This letter is effective for up to six months, and in the occasion that an individual doesn’t receive a loan in these six months, the whole procedure to obtain this letter must be gone through from the beginning.
    • Post-dated cheque – A cheque that has been written out to a future date is a post dated cheque. This is common practice by banks to ensure timely EMI payments and these cheques cannot be presented ahead of time.
    • Disbursement – The release of the loan amount from the bank to the borrowers is known as disbursement. A loan is disbursed after it has been approved by the bank post document verification, etc.
    • Full disbursement – When a loan disburses the entire loan amount at once, it is known as full disbursement.
    • Partial disbursement – Partial disbursement is when a bank disburses a portion of the entire loan amount.
    • Advanced disbursements – When the entire loan is disbursed ahead of time, before the project is even completed, it is known as advanced disbursements. Advanced disbursements are made on request and the understanding that the project will be completed on time.
    • Equated Monthly Instalments (EMI) – EMI is the monthly payments that need to be paid by a borrower towards the loan obtained by him/her. The equated monthly instalments begin after the loan is disbursed and consists of interest and principal.
    • Pre-EMI – Under construction properties usually avail partial disbursement of loans. In this case, a pre-EMI is made towards the same. A pre-EMI consists only of interest payments. The principal will be paid off after the entire loan is disbursed.
    • Resale property – A property that is not bought directly from the builder is known as a resale property. It is a property that is already owned by someone previously.
    • Pre-approved property – Properties that have gotten an approval from lending institutions are known as pre-approved properties. However, this doesn’t mean that availing a loan for this property is certain. Each application has to be inspected even though it is pre-approved, and there is no certainty that a loan will be given out. Mentioned below are some other misconceptions of a pre-approved property:
    1. Timely project completion: Homebuyers often thin that since the property is pre-approved, builders will complete the project on time. Although a thorough background check is made on the builder with regard to his past records, etc., it is not mean that the project has to get completed on time. The financial institutions do not take action against the builder in case of a delay in completion.
    2. The project is compliant with the law: In many cases pre-approved properties are compliant with the law. However, there are instances where small banks have overlooked many legal aspects, making it risky for homebuyers to invest in these projects. Therefore, it’s always sensible to do some research on the bank and the project itself before investing in it. It is also important to note that a reputed bank is less likely to pre-approve a project that is not legally compliant.
    3. A home loan cannot be availed from other lenders: Merely because a particular project has been pre-approved by a particular lender, doesn’t mean a homebuyer has to obtain a housing loan from the same lender. This is a myth. The builder may convince you to do so. However, it is the homebuyer’s choice and he/she doesn't have to stick to the same lender that has pre-approved the property.
    • Credit Appraisal – The evaluation of a borrower’s financial status in order to assess whether or not he/she is eligible for a loan is credit appraisal. This is an important and mandatory system that a lender follows before disbursing a loan.
    • Security – Security, with regard to loans, is and asset provided by a borrower as collateral to the bank in exchange for the loan. If the borrower fails to pay off the loan, the asset may be auctioned to make up the outstanding unpaid amount.
    • Loan to value ratio (LTV) – LTV is the total loan amount against the total value of the house/property. If the total loan amounts to Rs.75 lakh and the house/property is worth Rs.1 crore, the LTV for the borrower would be 75%.
    • Interest – Interest is simply the excess amount paid by the borrower to the bank over and above the total loan amount. The EMI payable to the bank always consists of both the principal and interest, and initially the a larger chunk of the EMI would consist of the interest. But as the tenure phases out, the interest reduces while the principal simultaneously increases.

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