The escalating real estate prices prompt individuals to fall back on a home loan to buy their dream homes.
Since a home loan is a significant financial decision, borrowers must be well acquainted with the intricacies of this credit option, including lender-specific eligibility criteria and home loan application procedure. There are several steps that borrowers have to follow to avail of the credit option. Moreover, robust digitisation has made the home loan application process easy and hassle-free. Home Loan tax benefit is also one aspect, a borrower can consider.
Know the Steps to Avail a Home Loan
The first and foremost step that borrowers take before making a home loan application is researching and comparing different lenders. Every borrower must choose a lender offering a competitive interest rate on the loan amount. After selecting the lender, borrowers have to follow the mentioned steps to avail of a home loan:
Step 1: Fill out the application form
The home loan application commences with a formal application. Borrowers need to fill out the application with personal information, income status, property details, type of employment, educational qualifications, etc.
Step 2: Attach documents
After filling out the application form, applicants must attach necessary documents. Here are the documents that borrowers must submit to receive approval for the loan amount:
- KYC papers
- Proof of income (ITR, bank statements)
- Proof of academic qualifications
- Employment details
- Property related documents (estimation of construction cost, consent letter from builder or society etc.)
- Bank account statements for last three months (for salaried applicants)
- Bank account statements for the previous six months (for self-employed applicant)
- Proof of business for minimum five years (Balance sheet, business licence, profit and loss statement etc.)
The list of documents mentioned here is indicative. Borrowers may have to provide additional documents per the lender's requirements. Moreover, borrowers must ensure that there is no discrepancy in documents as it can lead to the rejection of loan application.
Step 4: Pay processing fee
After successfully submitting the application form and the supporting documents, borrowers must pay the processing fee. It is a non-refundable fee that lenders levy to facilitate the loan verification process and maintain the borrower's loan account. The processing fee ranges between 0.25% to 1.0%. However, there are several lenders who do not charge any processing fees.
Step 5: Evaluation of applicant’s details and repayment capacity
Once borrowers have paid the processing fee, lenders will scrutinise submitted details and determine the borrower's eligibility. During verification, lenders may ask for face-to-face interaction.
Lenders will check borrowers' repayment capacity based on their incomes, other financial liabilities, CIBIL scores, etc. In addition, lenders can scrutinise credit reports from the credit bureaus to ascertain a borrower's repayment potential.
Step 6: Get sanction letter
The sanction part is extremely important in the entire home loan process. At this stage the loan application can get approved or rejected based on the lender's analysis of the borrower's profile and the submitted documents. Lenders usually scrutinise applicant’s age, qualification, income status, current job status, job type, etc. On successful verifying these aspects, lenders finally approve the loan application and imparts the maximum loan amount that they can disburse. The process then progresses with borrowers receiving the official sanction letter.
Upon successful verification and approval, borrowers will receive a sanction letter containing the following information:
- Sanctioned loan amount
- Home loan interest rate applicable on loan amount
- Loan tenure
- Repayment method
- Terms and conditions of the credit option
- Interest rate type (fixed or variable)
- Special scheme (if applicable)
Applicants will have to sign the duplicate of this acceptance letter and send it to the lender. The replica of the offer letter is returned to lenders for the purpose of record-keeping.
Step 5: Technical and legal check
After applicants have accepted the letter, then lenders will perform a legal verification of the property that borrowers intend to buy. Borrowers must submit all proper-related documents like NOC (No Objection Certificate), encumbrance certificate, property title, etc. Property documents remain with the lender until the loan amount is repaid. After that, lenders will do a legal verification of the property to check whether the title is clear. Lenders even scrutinise sales papers.
Then verification proceeds with a technical review of the property. Lenders will send a representative to examine the property site, work progression, time required to complete the entire construction, construction stage, quality of construction, layout of the property etc. Moreover, a specialised property valuation of the property is also conducted. If the house is for sale or resale, then lenders will consider its age, maintenance, ownership, surrounding area, property approval plans, valid requisite certificates, etc.
Once done with the legal and technical inspection, lenders will then proceed to determine property’s overall value. Post this, applicants have to sign a loan agreement and then they will receive the original property papers.
Step 6: Disbursement of home loan
In this step, applicants will sign the agreement paper. Post this, the home loan disbursal process starts. Subsequently, lenders will disburse loan amounts based on the terms that applicants have agreed upon.
Borrowers must choose a suitable loan tenure to repay the sanctioned amount on time. They must not miss out on EMI pay-outs as it will lead to penalties. If they want to close loan accounts faster, they can opt for a shorter loan tenure. It will help them go debt-free faster and save on cost of borrowing. On the other hand, borrowers can choose an extended loan tenure if they want to reduce EMI burden. In this regard, borrowers can use a home loan calculator; it will help them choose an optimum loan tenure and repay the loan amount on time.
To sum up, a home loan is the most sought-after credit option that helps individuals to purchase their dream abode. However, to make the most of this credit option and receive quick loan approval, borrowers must be well acquainted with the home loan application process. As it is a long term financial commitment, one must research well and choose a lender whose offering matches one’s requirement the best.
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