Housing market prices have skyrocketed in the last few months. However, it hasn’t led to a steep decline in either demand or sales. Instead, a majority of new home buyers, even young and first-time buyers, have set their hearts on mid-end (Rs. 40 – Rs. 80 lakhs) and high-end (Rs. 80 – Rs. 1.5 crores) properties. One of the factors behind this has been the simplicity of getting a home loan:

  • It begins with interested property buyers applying for a housing loan.
  • The loan is then sanctioned by the lender (bank or other financial institutes) after thorough verification of the borrower’s background, documents, CIBIL score, etc.
  • Finally, the loan is disbursed.

In this article, we will go through the home loan sanction and disbursement process in detail for the benefit of individuals who might be interested in taking a home loan.

How does the home loan sanction and disbursement process work?

As already mentioned, it’s up to the bank to approve any loan application after verifying the applicant’s background, documents and CIBIL score. The “quantum of loan” that can be approved also depends on these factors. Once the application is sanctioned, the bank will issue a home loan sanction letter which will include details regarding the loan amount, tenure and interest rate and other relevant information regarding the loan for the rest of the home loan disbursement process.

The home loan disbursement process is when the loan amount is actually delivered to the borrower. The time between loan sanction and disbursement is when the bank carries out technical, legal and relevant checks. The borrower has to produce the allotment letter, photocopies of the title deed, the encumbrance certificate, and the agreement to sell at the time of the disbursal.

Banks follow a specific home loan sanction letter format which they follow. The validity of the home loan sanction letter needs to be checked by the borrower.

The home loan sanction letter format will also contain details of the interest rate prevailing on the disbursement date. If all documents are submitted on time, it helps to reduce the ​​time between loan sanction and disbursement. This is the home loan disbursement process.

Housing loan sanction process

When the bank approves a loan, it indicates that the borrower can now confirm the booking of the property and make the down payment. Sanctioning of the home loan depends on the applicant’s income. Banks usually sanction a maximum of 80% of the value of the property as a loan. The amount has to be repaid within a stipulated period.

Home loan sanction criteria:

  • Eligibility of the applicant:
    Banks decide the eligibility of an applicant based on his income, income stability, CIBIL score, liabilities, etc. If an applicant has a high monthly income, they will be eligible for a bigger loan amount. Usually, banks consider that the borrower will make use of 50% of his monthly income to repay the loan.
  • Type of property:
    Banks may approve loans for buying plots on which the borrower will construct a house or for buying an under-construction or a readymade property, whether new or old. Banks offer loans for repairs or additions to property as well.
  • Property documents:
    The applicant should submit a copy of the property’s sanctioned construction plan, approved by a competent authority. Delay in submission could lead to increasing the time between loan sanction and disbursement.

Home loan sanction limit

An applicant must pay at least 10-20% of the total property cost from their pocket. Banks approve a maximum of 80-90% of the property value. An applicant may, however, opt for a lower loan amount.

Documents required

  • Applicant’s photograph
  • Legal certificates pertaining to purchasing the property
  • Identity proof
  • Residence proof
  • The latest salary slip, validated by the office and attested by the applicant himself
  •  Six months’ bank statement
  • Form 16/ income tax return

Home Loan Sanction letter

A sanction letter is a document that signifies that the applicant’s home loan has been approved by the bank. Here’s what a sanction letter is composed of:

  • Sanctioned loan amount
  • Tenure
  • Repayment method
  • Interest rate
  • Type of interest rate: fixed or floating
  • Tax exemption
  • Terms and conditions of the bank
  • A “valid until” date, mostly six months from the date of approval

On receiving the sanction letter, the applicant has to sign an acceptance copy and submit it within the “valid until” date.

Home loan process after sanction

After the home loan has been sanctioned, the disbursement process takes place. The actual disbursement is done through the home loan cheque disbursement process. The cheque is issued in favour of the seller of the property, which is handed over after the actual process of registration.

Procedure for home loan disbursement

The home loan disbursement process starts once the loan is sanctioned. The buyer pays 20% of the property value. The home loan disbursement allows the borrower to pay the balance amount to the builder and complete the payment process. For a resale property, the entire loan amount is disbursed at once. If the property is new, banks make the payment to the builder according to the terms and conditions mentioned in the agreement and depending on the various stages of the construction. The borrower usually starts repaying the loan as EMI immediately after the loan disbursement.

Home loan disbursement stages

There are multiple stages (usually three) in the home loan disbursement when the lender disburses loans in instalments. Disbursement in instalments is usually done when the property being purchased is an under-constructed one. The payments are made depending on the stage of construction of the property.

Home loan disbursement criteria

  • A bank-appointed architect should certify that the proposed construction is in strict adherence to the sanctioned plan.
  • No upfront disbursal of loan should be made to incomplete/ under-construction projects. Disbursal will only depend on the stages of construction of the property.
  • However, projects sponsored by the government or statutory authorities shall enjoy disbursal of loans as deemed fit by any such authorities.

The interest rate options

Home loan interest rates are of two types: fixed or flexible.

Conclusion

There’s no place like home. Many people dream of owning a home. The availability of home loans has helped many people to realise their dreams of owning one. Understanding the various home loan disbursement stages helps to expedite the entire home loan amount disbursement process. If you are looking for a home loan to purchase property, get in touch with Tata Capital for tailor-made home loans with an attractive rate of interest starting at 7.75%.

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