The Home Loan Process Explained
Every step towards buying a house is an experience in itself, and the euphoria mixed with apprehension is synonymous with this big decision. A home loan brings you closer to realizing your dreams, and the much-feared process involves documentations and approvals that are important to know about, since they lead to monetary obligations to a bank or financial institution. A home loan is a long-term commitment that calls for a comprehensive understanding at the borrower’s end.
FILLING THE LOAN APPLICATION FORM AND SUBMITTING DOCUMENTS
The process of a home loan begins with filling the application form with basic information about the applicant and co-applicant.
A co-applicant is a person who applies for the home loan along with the applicant and includes only a few family members such as a father and son, mother and son, husband and wife, unmarried daughter and father, unmarried daughter and mother and two brothers. Having a co-applicant increases the home loan eligibility as the income of the co-applicant can be used to supplement the borrower’s income.
While there may be more specific documents required by the financial institutions, the commonly required documents are:
- Identity Proof (PAN Card/Aadhaar Card/Passport/Driving License)
- Address Proof (Aadhaar Card/Passport/Driving License/Utility Bills)
- Age Proof (Birth Certificate/10thCertificate/Aadhaar Card/PAN Card/Passport)
- Educational Qualification Proof
- Income Proof (Bank Statements/Income Tax Return)
- Business Proof (Balance Sheet, Profit and Loss Statements, Business License, Proof of Business Address)
- Documents of the Property, if finalized (Approved Copy of Building Plan, No Objection Certificate (NOC) from Society/Builder, Estimated Cost of House Construction)
PAYING THE PROCESSING FEE
The next step is to pay the non-refundable processing fee, which is between 0.5% and 1% of the loan amount. This amount is used to initiate and further the home loan process. Recently some banks and financial institutions have resorted to waiving off the processing fee in order to attract borrowers. Thus, it is advisable to speak to them to avail this benefit, after confirming that this deferred amount will not lead to an increase in stamp duty cost, legal charges or an increased EMI.
SCRUTINY AND VERIFICATION OF APPLICANT/S
Post submission of the duly completed application form and the processing fee, the bank will evaluate the documents and decide on the amount you are eligible for. You might also be required to visit the bank or financial institution so that the bank officials can gauge your repayment capacity. Facts and credentials will then be verified by the bank via visits to your workplace and residence, based on the information you have provided in your application.
EVALUATION OF REPAYMENT CAPACITY
The most crucial part of the home loan process is the verification of your repayment capacity. The satisfaction of the bank or financial institution about your ability to repay the loan (principal with interest), on time, will decide if the loan is sanctioned or denied. In the scenario that the bank or financial institution issues a conditional sanction, the conditions shared by them will have to be satisfied by you before the loan is disbursed.
PROCESSING OF THE OFFER LETTER
If all of the above are in place, the bank or financial institution drafts the offer letter which enumerates the following details.
- Amount Sanctioned
- Rate of Interest
- Fixed or Floating-Rate of Interest
- Tenure of the Loan
- Mode of Repayment
- Government Approved - Home Loan /Benefits (if applicable)
- Terms, Conditions and Policies of the Home Loan
It is at this stage that you will be required to submit a signed acceptance copy, which is essentially a duplicate copy of the offer letter, to the bank or financial institution, as a confirmation that the contents of the letter are acceptable to you. This document is kept as a record in your file. Any charges, such as administrative fees, if applicable, need to be paid at this stage.
VERIFICATION OF PROPERTY
Now, the property you are interested in will be verified. For this, you will be required to submit the original copies of the Title Deed, No Objection Certificate (NOC) and other documents that the bank or financial institution may ask you to furnish. The bank or financial institution will then conduct a legal check on the property to ensure that the title is clear and there is no dispute.
For Under Construction Property
A valuation will be conducted for an under-construction property, which will include the location of the project, stage it is at, quality and progress of construction etc., and the evaluation of the property will be based on these established parameters.
For Ready or Resold Property
In the scenario that the said property is ready to be sold or resold, the bank will evaluate its age, ownership, quality of construction, maintenance, locality and legal clearances. The property valuators designated by the bank or financial institution will assess its value based on the parameters above and then ascertain the loan amount to be sanctioned. Since the home loan is a secured loan, the property documents will be kept as collateral and returned to you once you have repaid the entire loan amount with interest.
DISBURSAL OF THE LOAN
- Once the valuation is complete to the satisfaction of the bank or financial institution, the registration process commences. The legal documents are then prepared by the lawyer of the bank or financial institution in an approved format on stamp paper of required denominations.
- Post this, you will have to sign the home loan agreement and submit post-dated cheques for the duration agreed upon by both the parties. The process of disbursal will begin after this stage, and the amount disbursed will depend on the type agreed upon (lump sum or in stages).
- If all the documents are in place and you meet all the criteria of the bank or financial institution, the entire process, from the time you fill the form to the disbursement of the loan should take about 4 to 6 weeks.
While applying for a home loan, do ensure that you scout for lucrative offers that are provided by different banks and financial institutions, read all terms and policies carefully – both stated and implicit, speak to friends and family about their home loan experiences and then make a mindful decision about the bank or financial institution you would like to avail the home loan from.