Living in your own house is always a sense of relief. It is prestigious and silently adds to social security. It is, therefore, no wonder that the urge to have a home of one’s own is invariably high, especially among those who do not have one. Banks and housing finance companies acknowledge this relentless desire. The home loan schemes offered by them rightly empower the customer.
But before one starts the search for the right home loan lender, the home loan customer needs to understand and comprehend the home loan process carefully and clearly.
Home Loan Process
The home loan process broadly comprises three aspects
- Step 1 – Loan Application
- Step 2 – Loan Sanction
- Step 3 – Loan Disbursal
Step 1 – Loan Application
The home loan process begins by applying for the same. The stage is straightforward and requires the potential home loan customer to diligently search and carefully compare the deals of different lending companies. One should carefully examine various aspects of a home loan, the most important being the interest rate. For instance, the Axis Bank home loan interest rate may be different from the SBI Home Loan Interest Rate. The rate of interest directly impacts the EMI. It defines the cost of the home loan. Therefore, it is vital that the borrower considers SBI home loan over Axis Bank home loan interest rates given its lower home loan rates.
Once the prospective lending company is finalised, the application form along with the required documents are submitted to the lender. For example, if you choose HDFC home loan, after submitting the application, you’ll receive an Application Tracking ID which will be used to track your home loan application using HDFC home loan login.
Step 2 – Loan Sanction
Your home loan eligibility and document verification will happen at this stage. The bank representative will keep you posted on your home loan application and can also ask for more documents to validate your application. You can update these through your HDFC Home Loan login.
The bank will closely assess and evaluate your credit score to know your financial health. Applications with a low credit score are rejected at this point.
After the assessment of your profile and creditworthiness is completed, the lending company will verify your pledged property. A home loan is a secured loan, and the property will remain as collateral until the loan is repaid in full. Therefore, the bank will check if the property features in their approved list of properties.
Once the bank is satisfied with the paperwork, it will sanction the loan. The ‘Sanction Letter’ (also called the offer letter) will be issued in the customer’s name. The letter will document the terms and conditions of the loan, including:
- The rate of interest applicable on the home loan
- Loan tenure
- Approved loan amount
- Ascertained EMI amount
- Type of interest – flexible or fixed
- A special scheme like moratorium period, if any applicable
- Any other home loan benefits
- Mode of disbursement – full or partial
- Overall terms and conditions and miscellaneous charges applicable on the home loan
It is important to note that the sanction letter is generally valid for six months. It is within this time frame that the lender will submit the duly signed acceptance copy of the same along with the processing charges and apply for loan disbursal.
However, if the lender fails to do so within the period for which the sanction letter is valid, the sanction letter will stand cancelled and the entire home loan application process has to be completed again.
Step 3 – Loan Disbursal
While the loan sanction stage only certifies that the home loan is approved, this is the stage where the borrower actually receives the home loan proceeds. But the disbursement happens only if all the property-related checks and validations are successful.
The disbursal process also includes a series of steps. These include
- Submission of sanction letter – Once the borrower is satisfied with the terms and conditions mentioned in the sanction letter, he is required to submit the acceptance letter to the lender within the stipulated time frame.
- Property check and lawyer’s report – The borrower will be required to deposit the property-related documents like the Sale deed, No Objection Certificate, etc. These documents will be assessed by a lawyer appointed by the bank. If the lawyer is convinced of the authenticity of the documents, he will send in a positive report to the bank. In case of a negative report, the sanction letter is revoked by the lending company.
- Down payment – Not 100% of the property value is financed. Most banks fund up to 85% of the total cost. The balance is own-contribution. The borrower will have to pay the own contribution amount to the builder and submit an Own Contribution Receipt to the bank.
- Set the EMI payment mode – The preferred channel through which the EMI instalments will be paid is set. The bank will take the post-dated checks of the monthly EMIs.
- Loan disbursement – The sanctioned loan amount is now disbursed. As per the decided mode of disbursement mentioned in the sanction letter, full or partial disbursements of the home loan are made by the bank.
Under full disbursement, the bank issues a cheque of the entire home loan amount in the name of the builder. The rate of interest is charged from the date of disbursements of funds. Full disbursement mode is preferred when buying a fully constructed and ready-to-move-in property.
On the other hand, under a partial disbursement scheme, the decided loan amount is released in instalments. The amount of loan and the stages of disbursement are pre-decided. It is usually linked to stages of construction until the buyer receives possession of the property. The rate of interest on the home loan is charged on the instalment amount from the date the instalment is made.
Traditionally, the home loan process was a long drawn one. But thanks to technology and online banking, banks and non-banking housing finance companies have simplified their respective processes and procedures and made it quick and hassle-free. Most lending companies promise to complete the entire home loan process within 30 days of receiving the home loan application.