Having selected the property to buy, and after checking out the budgeting, it is time to start the process of buying the apartment in right earnest.
Choosing a lender and home loan
You need to book the apartment selected by paying the booking amount demanded by the seller. Booking amount may vary from 5% to 25% of the project cost. Pay by cheque and insist on a receipt. The lender will ask for your bank statement of account and counter-check the debit to your account as this will be reckoned for the margin you need to bring. Banks normally do not disburse the loan sanctioned till you bring in your contribution. Do you need to select a lender? Definitely “Yes”! You need to select a lender who is willing to finance for the amount sought and for the tenure at a rate of interest which is competitive. Please also check out whether the lender is prepared to take all the cost components when deciding LVR and loan quantum. Some banks offer pre-approved loans even before you select the property. Some banks offer housing loan in the form of an overdraft. You can take advantage of such schemes and reduce your funding anxiety. Lower the ROI, lower will be the EMI and you need to do some shopping before you select the lender. Please also check the hidden costs like processing charges, documentation charges etc. While some banks insist on a mortgage deed to be executed, some banks enter in to tripartite agreement in lieu of mortgage deed. Execution of mortgage deed will add to your cost of the project. You also need to select a lender who is offering a fixed or floating rate of interest on the loan as per your choice. Which is the better option is the question normally asked. A simplistic answer would be select a floating or variable rate if you expect interest rates to fall and go for a fixed rate if you expect interest rate to go up during the tenure of the loan. This is a simplistic assumption because the loan tenure is long and interest rate movements are difficult to predict in the long term. Studies have shown that floating rate is the best option for long term loans like housing loan. Some banks offer teaser rates, or fixed rates which are attractively priced for a short tenure, and which will automatically be converted into a floating rate after the set period. This is only a gimmick as there is no free lunch.
Verifying the documents
After paying the booking amount, ask the seller to make available the copies of the property documents. The originals will be in his safe custody and after the apartments are sold, it will be handed over to the apartment owners society of which all residents are compulsory members. Check the copies with the originals. The property search report will also be available with the seller along with statutory approvals. To be on the safe side, if it is not a property already approved by the lender, get a search report done from the Bank’s approved lawyer. Some banks insist on this. The search report should disclose nil encumbrance for past 13 years and a clear and marketable title with taxes paid up to date. The building plan approval copy is also to be gone through to ensure there are no deviations.
Signing the Sale and Construction Agreements
Once the booking amount is paid, the sale agreement and construction agreements are to be executed with the seller/developer on requisite stamp paper. The sale agreement should not be confused with the sale deed of the apartment.
The agreement of sale will consist of following covenants.
- Puts on record the transaction relating to the undivided share of land sold by seller to buyer, duly mentioning the revenue record details.
- Sets out the consideration to be paid in definite terms.
- Acknowledges the amount actually paid in advance
- Has schedules clearly mentioning the total land details,the extent of undivided land sold and the apartment number and super built-up area sold in the apartment building with project name.
The construction agreement is also entered side by side. The construction agreement has covenants like
- The aggregate purchase consideration and how it is to be paid in stages after each milestone is completed. Typically it may lay down say 25% as booking amount, 35% after completing third slab, 30% after completing brickwork, 5% after plastering and 5% when handing over the apartment fully ready for possession.
- Construction agreement also spells out penalty to be paid by buyer in case of delays in payment of amount specified, and also terms under which buyer can cancel the contract.
- It will also lay down the date of handing over possession to the buyer and maximum permitted escalation time. Here, ensure that seller has not inserted any cost escalation clause to buyer’s disadvantage.
- The agreement will have schedules describing the property, schedule describing the apartment in particular with all detailed specifications, schedule on rights and restrictions on buyer etc.
Property Sale Deed Registration
Go through every clause, every schedule of both the agreements and ensure that there are no onerous clauses before signing the agreements. Both the original agreements will have to be handed over to lender and disbursements will be against demand notice by seller and your consent and the completion of work. The last and final disbursement will be handed over to seller by the lender at the time of registration of sale deed, and the deed will be directly taken by the lender towards security for the loan. The sale deed is the document which establishes your ownership and has to be drafted carefully, which your legal adviser will do. Ensure that the parking lot is included in the sale deed. Also ensure that the schedule description of the property is exactly as per the agreements entered into earlier. Ensure taxes are paid up to date on the property. Once the sale deed is executed you need to transfer the revenue records of your flat to yourself. This is done either through mutation or by getting the Khata in your name, based on which state the property is situated. You also need to get the electricity meter transferred in your name. Water meters are normally allowed to be in the name of the association. Many a builder/developer help the buyer to get these one-time chores done for a fee. You can also attend to this on your own if you have the time and patience. You can also give this job to service providers for a fee.
In Karnataka, there is the Karnataka apartment ownership act, and the formation of owners society etc are governed by this law. Ensure that the society is registered under the act, and rules and by laws are framed in accordance with the law, to ensure a peaceful community living in the new apartment complex.
Ensure that the builder provides the completion certificate and occupation certificate from the civic authorities so that at a later date problems of deviation etc. are not raised.
PS: There are some issues, like for what amount sale deed is to be executed, whether it is at the government notified rate or the sale rate etc. Such issues are not discussed in this article and can be answered only on a case to case basis. Real estate market is one where everything is not black and white. There are more shades of grey here than any other market.