Happiness is buying your first home. Throughout the process, you may hit roadblocks, including finding the right property, saving for the down payment, getting your home loan approved, and more. Real-estate jargon can add to the confusion. Here’s a list of 9 important real estate terms to help you through.
1. Carpet and Common Areas
Carpet area refers to the net usable area in an apartment. It excludes the thickness of the walls, balcony, verandah, terrace or common service areas. Simply put, it’s the area within the inner walls where you can lay a carpet. Common areas are those that are common to all apartment residents. It includes the lift, lobby, staircase, event halls, gym, swimming pool etc.
2. Property Appraisal
Once you have finalised your flat, the bank to which you are applying for a loan will send valuers or Real estate appraisers to estimate the current market value of the property. And they shall offer 80% of the asset value as a home loan. You will have to pay the remaining 20% from your pocket as a down payment. Yay, that’s another term learnt.
3. Private Mortgage Insurance (PMI)
If you are short of your down payment (20% of your asset value), consider purchasing private mortgage insurance. It covers the outstanding amount in case of critical illness, job instability or death of the borrower. A PMI is paid annually and costs around 1.00% of the total loan amount.
4. Repo Rate
The Repo rate is the rate at which the RBI lends money to commercial banks. It can change multiple times during a fiscal year depending on our country’s economic situation.
5. Interest rate (Floating and Fixed)
Home loan interest rates vary between 6.75% and 14.00% depending on the banks or non-financial institutions. They can be fixed or floating. A floating or adjustable rate depends on the Repo rate and keeps changing throughout your tenure. An increase in the Repo rate increases the loan interest rates and vice-versa.
A fixed interest rate is when Repo rate changes have little to no impact on your loan rates. So, the interest you pay stays fixed throughout your tenure, even when the market rate goes up.
6. Co-applicant, co-owner and co-borrowers
Co-borrowers are married couples or immediate relatives who have a consistent source of income and apply for & repay a loan together. A co-owner has a legal share in the property with the main borrower. And a co-applicant is entitled to share loan responsibilities but may not have legal property share. They come into the picture to meet the bank’s eligibility criteria for loans but cannot enjoy the tax benefits that come along.
In short, all co-owners are co-applicants, but the reverse need not be true.
Equated monthly instalment (EMI) is the amount electronically deducted from your bank account every month for a fixed period. A longer repayment period reduces your EMI. A higher down payment also reduces your EMI as you’ll require a lesser loan amount.
Refinancing is when you pay off your current loan with a new loan that has a lower rate of interest. Refinancing brings down your loan amount and EMI.
9. Land Title
Once the seller transfers the full ownership of the property to the buyer by signing the sale deed, one acquires the land title. A land title is an official document asserting your ownership over an immovable asset.
Hope this blog shed some light on the frequently used real estate terms. Always seek professional help throughout the process considering your investment value.