Glossary of terms every homebuyer needs to know

Homeownership and the terms you need to know

Buying a home can be so stressful. But in the midst of it all, there are terms and jargon used by people from the real estate industry, and that you are expected to understand. What is the difference between floor and carpet areas, do you pay extra for the open balconies you love? Does the size of the house change from the carpet area to the built-up area, what is used to calculate your interest?

Here are some explanations, to help you understand what the real estate industry and make an informed choice.

Calculating the area of a home you plan to buy

Carpet Area: According to the Real Estate Regulatory Authority (RERA), Carpet area is the net usable floor area of an apartment, excluding the area covered by external walls, the area under utility shafts, exclusive balcony, or verandah area, and exclusive open terrace area. The carpet area includes the area covered by the internal partition walls of the home.

Built-up area: The built-up area of a home is measured at the external perimeter wall surfaces. It is made up of the carpet area plus the wall thickness and other non-usable areas within the apartment such as the dry balcony, terrace, flower beds, etc. It is always greater than the carpet area. Built-up area is carpet area + area of walls

Super built-up area: The super built-up area is the saleable area, which includes the carpet area, the terrace, balconies, areas occupied by walls, and area occupied by shared structures (e.g. lift, stairs, etc). In some cases, builders include amenities such as a pool, clubhouse, and garden. Builders use the carpet area load factor to arrive at the super-built-up area. Super built-up area = Built-up area + common areas

Exclusive: The term “exclusive balcony or verandah area/exclusive terrace area” means the area of the balcony/ verandah/terrace that is a part of the net usable floor area of an apartment, meant for the exclusive use of the unit only

Glossary of common housing terms

Actual Cash Value: An amount equal to the replacement cost of damaged property less depreciation
Adjustable-rate mortgage: There are two types of conventional loans: Fixed-rate and Adjustable-rate mortgage. With an adjustable-rate mortgage, the interest rate on the loan can change at five, seven, or ten-year intervals. For homeowners who plan to stay in their home for more than a few years, this is a risky loan as interest rates can suddenly spike depending on market conditions
Adjustment Period: There is usually an initial adjustment period, that begins with the start date of the loan and ranges from 1 to 10 years. After the initial adjustment period, adjustment periods are usually 12 months, which means that the interest rate can change every year
Amortization: Repayment of a loan over a specified period of time and at the interest rate specified in a loan document. Amortization of a loan includes payment of interest and a portion of the amount borrowed in each mortgage payment
Annual Percentage Rate (APR): Annual cost of a loan, a standardized method of determining the total cost of a loan. The APR includes the interest rate, points, broker fees, and certain other credit charges a borrower must pay. The fees are expressed as percentages and added to the actual interest rate to determine the total APR
Appreciation: An increase in the market value of a home due to changing market conditions and/or home improvements
Arbitration: A process by which disputes are resolved before a fair and neutral third party (the arbitrator). The disputing parties agree in advance to agree with the arbitrator’s decisions
Back-End Debt-to-Income Ratio: A comparison of your monthly debt payments to your monthly income, and is a widely used measure of your credit worthiness. You calculate your debt-to-income ratio by dividing your minimum monthly debt payments, not including your rent or mortgage, by your net monthly income
Balloon Mortgage: A mortgage with monthly payments based on a 30-year amortization schedule, with the unpaid balance due in a lump sum payment at the end of a specified period (usually 5 or 7 years). The mortgage includes an option to “reset” the interest rate to the current market rate and extend the maturity date if certain conditions are met
Cap (Interest): An interest rate cap is a consumer protection measure on an ARM which limits the amount of change of the annual interest rate and over the life of the loan
Cap (Payment): A payment cap is a consumer protection measure on an ARM that limits the amount by which monthly payments can change
Closing (Closing Date): The completion of the real estate transaction between the buyer and seller. The buyer signs the mortgage papers and closing costs are paid. Also known as settlement date

Closing Disclosure: A form that contains the final details of the selected mortgage loan. It includes the terms of the loan, the expected monthly payments, and lists all fees and other costs of obtaining the mortgage (closing costs). The lender is required to send the Closing Disclosure to the borrower at least three business days before closing the mortgage loan
Collateral: Property that is used as security for a debt. In the case of a mortgage, the collateral would be the house and property
Commitment Letter: A letter from your lender stating the amount of the mortgage, the number of years to repay the mortgage (term), the interest rate, the loan origination fee, the APR, and the monthly charges
Condominium: A form of home ownership in which the home buyer receives exclusive ownership of the interior of a multi-unit building (usually an apartment building or a townhouse), and shares ownership of to the common areas of the condominium (example parking spaces or a swimming pool)
Co-operative Housing: In real estate, co-operative housing is a form of multiple ownership in which a corporation or trust owns the property (usually an apartment complex) and grants occupancy rights to unit-owner’s tenants through their own leases
Credit Report: A credit report is a record of your personal credit history. It is compiled by credit bureaus/credit reporting agencies based on information provided by lenders and contained in public records. It contains very extensive information about your credit history and is probably the most important document lenders refer to when deciding whether to grant you credit

To read more how to calculate, click here

Debt-to-Income Ratio: The percentage of gross monthly income used for your monthly housing expenses, child support, car payments, as well as payments of other installment debts, and payments on revolving or open-ended accounts such as credit cards
Deed: The legal document that transfers ownership or title to a property
Default: The failure to fulfill a legal obligation. A default includes the failure to fulfill a financial obligation, but can also be the failure to perform an act or service that is non-monetary. For example, when leasing a car, the lessee is usually required to properly maintain the car
Depreciation: A decrease in the value of a home due to changing market conditions or lack of maintenance
Down Payment: A portion of the purchase price of a home, usually between 3% and 20%, that is not borrowed and usually paid upfront, with the balance paid at settlement. It is also the difference between the sale price of real estate and the mortgage amount
Equity: The value of your home above the total amount of the liens on your home. If you owe Rs. 10,00,000 on your house but it is worth Rs. 13,00,000, you have Rs. 3,00,000 of equity
Escrow Account: The safekeeping of money or documents by a neutral third party prior to closing. In a real estate purchase, the buyer is usually required to deposit a portion of their down payment into an escrow account where it is held until closing. After the property is purchased, a portion of each mortgage payment is usually deposited into an escrow account to pay the property’s taxes and insurance. It can also be a lender account (or servicer) into which the homeowner deposits money for taxes and insurance
Foreclosure: A legal action that terminates all ownership rights in a home if the homebuyer fails to make mortgage payments or otherwise defaults on the terms of the mortgage
Home-Equity Loan: Also known as a second mortgage, is a closed, secured loan where your home serves as collateral. The terms, interest rates and payments can be fixed or adjustable (they fluctuate based on a key index).Typically, you borrow a predetermined amount from your lender and pay it back in installments (usually monthly)
Homeowners Insurance: A policy that protects you and the lender from fire or floods that damage the structure of the home; a liability insurance, such as if a visitor to your home is injured; or damage to your personal property, such as your furniture, clothing or appliances
Housing Expense Ratio: The percentage of your gross monthly income that goes toward your housing costs
Interest: The cost you pay to borrow money. It is the payment you make to a lender for the money they lend you. Interest is usually expressed as a percentage of the amount borrowed
Lien: A claim or encumbrance on a property to pay a debt. With a mortgage, the lender has the right to take title to your property if you fail to make the mortgage payments. Liens are always against property, usually real property
Loan Estimate: A written statement from the lender detailing the approximate costs and fees associated with the mortgage. A lender is required to provide prospective borrowers with an estimate within three business days of receiving a loan application
Loan Origination Fees: Fees paid to your mortgage lender for processing the mortgage application. This fee is usually charged in the form of points. One point is equal to 1% of the mortgage amount
Lock-In Rate: A written agreement that guarantees a specific mortgage interest rate for a specific period of time
Market Value: The current value of your home based on the highest price a buyer would pay. And the lowest price a seller would accept. An appraisal is sometimes used to determine market value, which is the basis for a home’s “list price” or “asking price”
Mortgage: A loan in which a home serves as collateral. The term mortgage is also used to refer to the document you sign (to give the lender a lien on your home). It can also be used to refer to the amount of money you borrow, with interest, to buy your house. The amount of your mortgage is usually equal to the purchase price of the home minus your down payment
Open House: When the seller’s real estate agent opens the seller’s house to the public. You do not need a real estate agent to attend an open house
Pre-Approval Letter: A letter from a mortgage lender indicating that you qualify for a mortgage of a specific amount. It also shows a home seller that you’re a serious buyer
Pre-Qualification Letter: A letter from a mortgage lender that states that you’re pre-qualified to buy a home, but does not commit the lender to a particular mortgage amount
Pre-approval: A written agreement from a mortgage lender to grant a loan for a home purchase. The pre-qualification is based on the lender’s careful investigation and evaluation of the potential homebuyer’s income, credit history, employment history, personal assets, and debts. Pre-approval assures the seller that a buyer’s offer is valid. It also speeds up the buying process because, once an offer is made, there is no need to wait while the buyer finds a loan
Pre-qualification: An informal way to calculate an estimate of the approximate amount of money a homebuyer can afford to spend on buying a home. The pre-qualification, performed by a realtor or a potential homebuyer, compares the potential buyer’s income and assets to the buyer’s debts
Prepaid Items: Costs paid at closing for taxes, interest, and insurance. Because prepaid items are recurring costs that don’t relate to the acquisition of the property itself, they can’t be financed
Principal: The amount of money borrowed to buy your house or the amount of the loan that has not yet been repaid to the lender. This does not include the interest you will pay to borrow that money. The principal balance (sometimes called the outstanding or unpaid principal balance) is the amount you owe on the loan less the amount you have repaid
Qualifying Ratios: Calculations that are used in determining whether a borrower can qualify for a mortgage. They consist of two separate calculations: a housing expense as a percent of income ratio, and total debt obligations as a percent of income ratio
Rate Cap: The limit on the amount an interest rate on an ARM can increase or decrease during an adjustment period
Refinance: Getting a new mortgage with all or some portion of the proceeds used to pay off the original mortgage
Repayment Plan: This is an agreement that gives you a fixed amount of time to repay the amount you are behind by combining a portion of what is past due with your regular monthly payment. At the end of the repayment period, you have gradually paid back the amount of your mortgage that was delinquent
Secured Debt: A secured debt is tied to a specific piece of property, such as a house. The property, called collateral, guarantees repayment of the debt. If you don’t pay, the creditor can take the property back
Title: Written evidence of the right to or ownership of property. In the case of real estate, the documentary evidence of ownership is the title deed that specifies in whom the legal estate is vested and the history of ownership and transfers. The title may be acquired through purchase, inheritance, devise, gift, or through foreclosure of a mortgage
Title Insurance Policy: A contract by which the insurer agrees to pay the insured a specific amount for any loss caused by defects of title to real estate, wherein the insured has an interest. Homebuyers usually must purchase lender’s title insurance to protect the lender’s interest and may choose to purchase buyer’s title insurance to protect their own interest
Underwriting: Mortgage underwriting is the analysis of the risk involved in making a mortgage loan to determine whether the risk is acceptable to the lender. Underwriting involves the evaluation of the property as outlined in the appraisal report, and the borrower’s ability and willingness to repay the loan
Warranties: Written guarantees of the quality of a product and the promise to repair or replace defective parts free of charge
Variable Interest Rate: A variable interest rate is adjusted, usually quarterly, based on an economic indicator. They are commonly based on an economic index such as the prime interest rate, Treasury Bill rate, or the Federal Funds rate

So here are the ones that will help you. And, as you go through the process, there may be many more that may puzzle you, which you may need to understand. We hope you reach out here, leave us a comment and we will do our best to help.

And, we hope to see you in your dream home very soon.

Suggested reading:
Home Buyers Guide On The Things To Consider Before Buying Home
5 Awesome Ideas To Own A Dream Luxury Home In Bangalore

Before making an offer on a house, you want to be absolutely sure that this is THE one. What are the things to check, what will be your checklist to buying your home. After all, it will be the place you will live in, where your family will grow, where you create your own space and yours to nurture.

So, how will you find your perfect match?

It will be a waste of time if you go into property searches without first doing your homework. How much can you afford, what is the paperwork needed, how convenient is the location for everyone. Is it close to schools, your office? Is it close to shopping, what about public transport for your deliveries, house help, where to buy groceries?

Read more on working on your budget and interest rates

Read more on locations and whether a small or large complex suits you best

But, after all that, there are still more things to look out for, warning signs you need to pay attention to, before you make your offer

Home buyers checklist during a physical visit

What is the neighbourhood like?
You can change things in the home, but you cannot change the neighbourhood. Your realtor can help you understand the neighbourhood- how convenient are the grocery stores? Malls? Entertainment like movies, restaurants. Important distances from schools and office areas. Proximity to main roads and noise and traffic levels.
Fortunately, today the internet also helps you with a lot of research that you need to do.

How does the neighbourhood rate?
While we all know that prices vary by the quality of the building and the size specifications, do check how much homes in the neighbourhood are being sold for. This will help you work out if the seller is demanding an unreasonable price, or is undercutting due to some other distress. Your realtor can help you work out the competitive rates in the location.
And, what are the neighbours like?
Check if the property has a large number of units on rent or owners. With high renting, you may be faced with a constantly changing neighbourhood. If those residing are predominantly owners, you have the assurance that the property will be maintained well. Usually, it is a combination of both.
Are your immediate neighbours noisy or quiet? Is there a pet in the house? Are there many units open to short term homestays or BnB, is that a security concern? If there are units rented by students, a floating population is a hazard as they will keep changing with the academic terms. Walk around the neighbourhood, meet the neighbours, get a feel of your own comfort levels.
What is the view from the exact unit you are considering?
An East or West facing home may be important to some to let in the sun, especially in Bangalore weather. However, others may prefer the relative cool of a North facing house. While it may not be possible to check with an artist’s impression or a 3D model in your realty office, you may realise the neighbouring building is too close. Or the house faces the entrance and not the openness you saw in the drawings. So, during your on-site visit to the new property, check the views.
The new one, check the WiFi connections, TV and other media connections!
With multi story houses, satellite TVs have a different connection from single homes. Most people don’t know that one dish can serve a virtually unlimited number of receivers. It’s very possible but it has to be done right.
Satellite signals can run through about 200-300 feet of cable without a problem. That may not be enough to get from the roof to the room where the receiver is.
Check also for WiFi, because sometimes a wall blocks the signal and you may need a booster. With so much dependence on the network, and with work-from-home as well as online schooling, these have taken a new importance today.
How does the house smell to you?
Your nose is a good way to do a quick and easy check for leaks, mould, trapped moisture, faulty plumbing, poor fixtures. All these can be hidden under a fresh coat of paint or a quick fix. A careful check of the ceilings for instance, can tell a different story. If you feel doubtful, you can of course, have an expert come and check before you finalise, you may need to pay for the inspection yourself.
What is included in the sale?
A brand new home usually includes just the sanitary fittings. A semi furnished flat usually includes the fans and lights, water heaters in at least one bathroom, modular kitchens already fixed including the exhaust fans and pipes. And bathrooms with the basic fixtures. In terms of new properties, check the service areas too, for the electronics that come with the house.
However, there could be many things you think are included, but are actually not. The listing description should spell out what is included, and what is not.
Are there any health or safety concerns in the construction?
When it is a resale or a pre-owned home, check for lead treatment or the history of mould. Ask the seller to provide documentations if this has been an issue in the past, and what are the prevention measures already done. If you suspect a hazard, do call in an independent inspection, you may need to pay for this yourself.
When looking at an old home/resale home, check why is the house vacant?
If it is a pre-occupied house, check why the previous owners (or renters) left. If the reason is a job relocation or the result of a major life event, it might give you a better understanding of how much they will be willing to negotiate.
And if this is a new property, check on the probable resale value. Not from the point of selling soon, but more about the kind of development the area is expected to see, and how premium is the surroundings.
An average length of a resident can be taken as nine years. If the turnover is significantly less than this, it can be taken as a warning to delve deeper.

What were the additions and renovations in a pre-owned home?
If you are buying a pre-owned home, the renovation history will help gauge the conditions and understand the sellers price- what looks like a 3 BHK could actually have been 4 with walls collapsed.
For a new home, you also need to understand where cupboard spaces have been allocated, especially for kitchen storage. What are the fittings for air conditioning, or will this have to be created once you move in? Fortunately, most new constructions today plan around the fittings and provide convenient electric wirings too

How old are the appliances and major systems, especially in pre-owned homes?
Understand the essential life span and warranty of the white goods, if these are included in the sale in a semi-furnished or furnished home. Checking the warrantee terms of fixtures like the refrigerator, washing machine, even the air conditioning and water heaters, will help you budget for repairs and replacement expenses. If you are moving into a home where these are already close to the end of their lifespan, you may want to negotiate replacement costs

How much will you pay in closing costs?
The down payment is not the only cash you need. There is also the loan fees, lawyer fees and title research, appraisals and processing fees as well as administrative fees. Expect an addition of 2 to 5% to the home purchase price in the closing costs.

Be super vigilant in your inspection. Then you will have the confidence to be buying the perfect home. Check the taps, the electricity, the smells and the sounds. Then confidently step into the next processes- the negotiations, the payments, the paperwork. Soon, your dream home will be yours!

Suggested reading: Shop around for a mortgage