The prices in the country’s real estate sector have been rising consistently. Now that inflation is high, it is challenging for people to fulfil their dream of owning a home. However, with the rising awareness of home loans, many people find it easier to buy a home. Therefore, a home loan has become a buzzword for people who want to buy a property and own a home. But before applying for a home loan, it is essential to know two important stages of a home loan: the home loan sanction process and disbursement of the loan amount.
What is meant by home loan sanctioning?
Once an applicant applies for House Loan with the specific lending institution and submits all required documents, the lender will review all their documents. All personal and financial details of an applicant, such as their age, address, profession, salary, work experience, financial standing, and CIBIL score, are cross-checked.
Documents that a banking institution requires from an applicant for a home loan are:
- KYC documents (identity proof, address proof, and age proof such as PAN, passport, or driver’s license)
- Employment or business proof
- Income proof (recent salary slips or balance sheet of the company)
In addition to checking an applicant’s documents and credit score, a lending institution might also call the applicant for a face-to-face discussion. When the lender is satisfied with the application, the applicant will receive a notification of sanctioning the loan.
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What is the sanction letter?
A loan sanction letter is a document that a bank or other lending institution offers to the applicant after approving his home loan application. This specific letter contains the details related to the loan agreement, such as
- The approved home loan amount
- Type of interest rate on home loan (fixed or floating)
- The rate of interest on a home loan
- The loan repayment tenure
- EMI amount
- Details related to tax benefits
- Special subsidies or offers (if any)
The sanction letter is proof that you are eligible to borrow a home loan from a particular lending institution with the predetermined terms and conditions.
How much loan is sanctioned by lenders?
According to the guidelines issued by the Reserve Bank of India, both banking and non-banking financial institutions can’t fund the entire amount an applicant requires to purchase a property and build a home as a loan. Lending institutions can only lend a certain percentage of the property’s market value in the form of a home loan.
This percentage can vary from lender to lender. Generally, this percentage ranges from 60% to 90% based on your eligibility and what bank an applicant chooses. The lender considers several factors, such as age, income, credit score, financial stability, and more, before deciding the percentage of the home loan amount.
What is meant by the home loan disbursement process?
Your home loan application process does not end with sanctioning of a home loan. One more crucial stage must be overcome, i.e., the home loan disbursement process. During this process, the approved home loan amount is disbursed by the banking institution by crediting it to the saving account of an applicant.
The timeline of the home loan disbursement procedure depends on the terms and conditions of a specific lender. Usually, a home loan amount is disbursed within 72 hours once the applicant has received a home loan sanction letter.
Home loan sanctioning and disbursement process:
Below mentioned are important steps involved in the home loan sanctioning and disbursement process:
- Documentation: Once you have applied for a home loan with a banking institution, the lender might ask you for documents to verify your identity and financial worthiness. These documents include your identity and address proof, bank statements, PAN card, property purchase agreement, and more.
- Credential check: Additionally, lenders run a background check on the applicants to verify their personal information. The lending institution will also cross-check your credit score ad financial standing.
- Face-to-face interview: Many lenders believe that a personal meeting can better understand the applicants and their purpose in applying for a home loan. Once the bank is satisfied with your home loan application, the loan is sanctioned, and applicants are provided with a home loan sanction letter.
After the competition of the home loan sanctioning process, next is the loan disbursement process.
- The paperwork: Your lender will provide you with home loan documents that are to be signed and submitted by you on or before a specified date. Also, you will be asked for your property documents.
- The down payment: Before disbursing the home loan amount, the bank will ask the applicant to pay some percentage as a down payment. For instance, you will be asked to pay 20% of the overall cost of the property as a down payment. This percentage varies from bank to bank based on the applicant’s profile.
- Legal checks: The banking institution is mandated to perform a legal assessment of the applicant’s property documents as provided to the lender. Documents related to property, such as sales deed, own contribution certificate, no-objection certificate, and more, are required by the lender.
- Disbursement of home loan: The approved amount for a home loan is disbursed and deposited by the bank in one or two instalments in the applicant’s saving account. Time taken to disburse loan amounts varies from bank to bank. Usually, the loan amount is disbursed within two days or more after sanctioning a home loan.
Some lending institutions can also ask applicants to pay fees for the legal verification of property documents. The EMIs for the Best home loan commence only after sanctioning and disbursal of the home loan amount.
The two most crucial stages of the overall home loan application are the home loan sanction process and the disbursement process. Knowing everything about these two stages makes the home loan application process much faster and hassle-free. When considering applying for a home loan, make sure to opt for the lending institution that can simplify your home loan process.