If you are looking for a home loan to fund your dream house, then you need to be aware of the home loan details required in the process. No doubt it’s a tedious and time consuming process, but a little bit of homework can make the journey hassle free. Home loan approval is basically a two stage process. The first stage is the Loan Sanctioning stage where bank or housing finance company (HFC) ascertains that the borrower can afford the loan repayments. As an output, bank or HFC issues a loan sanction letter detailing loan offer. Second stage is Loan Disbursement stage. Once the borrower has formally accepted the loan offer, loan amount is disbursed to the borrower after a security assessment of the home he plans to buy. A detail of the necessary steps is presented below for your reference.| Stage 1 – Loan Sanction (Duration – Approximately 3 to 5 days) |
Loan Application and Assessment
Loan approval process begins with home loan application form. All the necessary documents like Identity Proof, Address Proof, Income Proof, Employment Details, Educational Qualifications Proof, Property Details and Bank statements are submitted to the Bank or HFC along with the application form. In the assessment phase, bank or HFC tries to achieve two things, first, verification of borrower and second, assessment of borrower’s loan repayment capacity. The borrower’s credit check is carried out and accuracy of the information provided by the borrower is crosschecked at this stage in order to detect fraud. The bank might call borrower for one to one discussion in the assessment phase.
Borrower’s credit history plays an important role in the home loan approval; hence, it’s advisable to settle all credit related issues before submitting the loan application.
Conditional Home Loan Sanction or Rejection
Once the bank or HFC is sure about your identity and capacity to pay, they approve the conditional sanction of your home loan. The bank then provides a Loan Sanction letter with the following details:
If the borrower agrees with all the facts mentioned in the sanction letter, he is supposed to provide an acceptance letter to the bank or HFC.
The Loan sanction letter should not be treated as a guarantee of disbursement, as there are other verification steps involved. Sanction letters are not forever and are normally valid only for 6 months. Borrowers are advised to initiate the loan disbursement process before expiry of the sanction letter.
| Stage 2 – Loan Disbursement (Duration – Approximately 5 days) |
Property Valuation and Security Assessment
Once a borrower formally accepts the loan offer and requests for disbursement, bank or HFC asks for property documents from the borrower. Based on the inputs, valuation of the home is done and all the property documents are legally validated. After valuation and security assessment, Bank or HFC decides if home loan can be disbursed against this property or not.
Home Loan Disbursement
Once all the above steps are executed successfully and there is rejection from the bank, home loan agreement is signed by both the parties. After the agreement, bank prepares disbursement cheque as per type of disbursement (in full or in parts) and disburses the loan amount.
Word of Caution
Loan sanctioning and disbursal is not a free process and the borrower is required to pay processing and disbursement fees at various stages.
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