The fine print of buying a house

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First-time home buyer? Perhaps you’re equal parts excited and nervous. The excitement is good. But the nervousness? Not so much. Most of the anxiety for first time home buyers comes from the ambiguity around the whole process. There's so much information asymmetry in the real estate market, it can overwhelm veteran home-owners too. Today, I’ll help you get over this issue by taking a closer look at the fine print of buying a house.

There are two parts to the nitty-gritty details. Firstly, there's a list of documents required to buy a house in India & then comes the set of charges and costs involved. 

What legal documents do you need to buy a house?

The list of legal documents required for the purchase of a property is quite extensive. But it’s important to stay one step ahead and have your paperwork in order, so the entire process of buying a house goes smoothly. 

Here are the key documents required to buy a house in India.

The Sale Deed

The sale deed is one of the most fundamental legal documents you should be aware of. Simply put, it is the document that proves you bought the house from the seller. And it is evidence that the title of the house is in your name, which is why we also call it the title deed. If you want to sell your house years later, the sale deed or the title deed is crucial to that transaction. 

The Encumbrance Certificate (EC)

An encumbrance refers to any kind of burden or debt. Before you buy a house property, you need to ensure that it is free of any such encumbrance. Here’s where an Encumbrance Certificate comes into the picture. It is proof that the property you wish to buy has a free title. 

So, you need not worry if the seller has pledged the house as collateral for any loan they may have availed. Additionally, you also need the EC to avail a home loan to pay for the property.

No-Objection Certificate (NOC)

Before building the house, the developer of the property needs the permission of different municipal authorities, such as - 

  • The sewage board
  • The environment department
  • The traffic and coordination department
  • The pollution control board

An NOC from each of these local body authorities is necessary, so you have proof that the building plans do not violate any of the existing norms and laws. 

The Occupancy Certificate

It's a document issued after a building has been completed, inspected, and pronounced fit for occupation. Also called Completion Certificate, it's only given if the building complies with all the permissible building plans and local regulations and laws.

The Allotment Letter 

Planning to buy a home that is still under construction? Like a unit or villa in a gated community? In that case, the Allotment Letter is very important. It is evidence that a unit in the apartment or community has been allotted to you, and you can make use of this document to get a home loan easily. 

What are the fees and charges you should be prepared for? 

When you’re preparing a budget and creating a financial plan for buying a house, it’s not just the number on the price tag that counts. A 50-lakh house never costs just Rs. 50 lakhs. There are many other fees and charges you need to account for.

Here’s a preview of these additional costs. 

Stamp Duty

The stamp duty is a kind of tax that the state government levies on the purchase of residential property. The rate of stamp duty varies from state to state. It can range from around 4% to 7% of the cost of the property. 

Registration Fees

Want to get the house registered in your name? To do that, you need to pay registration fees to the government. These fees can be around 1% to 2% of the cost of the house. 

Goods and Services Tax (GST)

The good news? If the property you are buying is ready-to-move, you need not pay any GST on the house. But if you are buying a house that is still under construction, GST is levied at the following rates - 

  • 5% on general residential properties
  • 1% on affordable housing projects 

Advance Maintenance Deposit

Real estate developers may also collect maintenance charges for the first year or two in advance. This deposit is used to fund the costs of running and maintaining common amenities and facilities in the building. 

The maintenance deposit is not charged as a percentage of the cost. It depends on the locality, the amenities and the builder. So, it varies from one house to another. And it’s best if you check with your builder to get a better idea of these costs.

Brokerage

If you’ve availed a broker’s services to find the right house to buy, be prepared to shell out another 1% to 2% of the cost of the house as brokerage charges. This amount may be higher too, so check with the broker about the fees they charge.

This should help you decode the fine print on buying a house a little more efficiently. Make sure you get the necessary documents, and keep them safely since they may be handy in the future. And above all, ensure that you factor in the costs in the fine print when you prepare your budget.

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