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A step-by-step guide to home loan approval and disbursement process in India.

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Home Loan Approval &Disbursement Process in India

In today’s scenario where cost of everything essential for survival is witnessing a steep upward movement, dreaming of a home or property has also become a difficult task. You are well versed with the fact that buying a property or building a house is a matter of extensive research and managing finances add on to the challenge.
 
However, one thing is certain that once you have decided that you need to have a place of your own there is no stopping as home loans have made it easier for everyone to accomplish their dream of buying a home.
 
While you are busy trying to fetch location for your dream home, it is very important for you to have a crisp idea of the home loan process in India – right from approval to disbursal. Following are steps that will take you through the entire process of home loan in India. Read On.
 
Home Loan Process in India - It goes without saying that prior to laying your hand on one particular bank or financial institution it is important for you to go through the rates and benefits of home loans that are being offered by almost all banks and financial institutions. Compare the rates and try to analyze the best being offered to you before you settle for your lender. Like any other loan, the process of home loan too begins with the application form. 
  1. Filling and Filing of Application Form – The very first thing you are supposed to do while looking for a home loan is that of filling and submitting the application form. You may witness a difference in the format of the application form from bank to bank but more than 80 percent information that they want you to share remains the same. The application form basically wants you to give away your professional and personal information, the details of the property (in case you have finalized it), the estimated cost and your assets and liability details. 
  1. Documentation - Along with the application form you are also required to present a few documents. These documents are –
  • Identity proof
  • Address proof
  • Income proof
  • Proof of educational qualifications
  • Age proof
  • Employment details
  • Bank statements
  • Details about the property in case you have finalized it before hand 
  1. Processing Fee – While submitting the home loan application form you will also be charged with a processing fee that varies for different banks and financial institutions. However, processing fee usually ranges from 0.25 percent to 0.50 percent of the total loan amount. Negotiation on processing fee with the banks may end up in reduced or minimized rate of processing fee by the bank. This fee is charged by banks for providing you with services like maintenance of post dated cheques, sending of Income Tax certificates each year etc. 
  1. Evaluation of Application and Personal Discussion – Once your application is filed, the bank/institution analyzes your application and then meets up with you for a personal discussion. The evaluation process takes a time of maximum one day or two. It is advised that when you are called for a discussion you should carry all the originals of the documents that you have submitted as they may be called for verification. It is important for you to provide the bank with accurate information especially your financial details as banks sanction loans only when they are satisfied with your credentials. 
  1. Investigations by Banks – All banks validate the information provided by you by conducting checks on the residential or official address. The representatives of the banks will visit your residence or your place of work in order to verify your address and employer credentials. Your telephone lines of work and home are also verified. Is advisable when the investigation or validation process begins try to be available at your home or your work place in order to provide with the details they are looking for. 
  1. Sanction of Loan and Credit Appraisal – If the bank gets convinced with your credentials and the validation process it gives you a green signal and sanctions the loan amount in your name. If not then your application for loan process gets rejected here. Your credit worthiness is calculated by bank on the basis of your income, age, employer or firm with whom you work or in case if you are self-employed then your nature of work, bank statements and CIBIL report and then plans out the maximum loan amount that they can offer you. You are then issued a sanction letter by the bank which may be a letter that does not have any terms or conditions or it may put forth certain terms and conditions that you ought to fulfill before your loan gets disbursed. 
  1. Loan Offer Letter – The loan offer letter that you will receive thereafter would comprise of the following –
    • Loan amount
    • Tenure of the loan
    • Rate of Interest
    • Nature of rate of interest that is whether fixed or variable rate of interest linked to a reference rate.
    • General and special (if any) terms and conditions of the loan.
    • Mode of repayment 
Once you agree to the above mentioned details you will sign in the acceptance copy that would be kept with the bank for their record. It is also advisable to negotiate with the bank on the rate of interest. With the fierce competition and race for meeting periodic targets, banks vie against each other and this may work in your favor. 
  1. Property and Paper Work – The legal side of the contract will now come to action. The property becomes the cynosure of bank’s eyes. Once you are through with the selection part of your property, banks ask for original documents of your property to be handed over to them. These documents for a part of banks custody and would serve as security for the bank till the time you repay your home loan. The property documents usually consist of the following – 
    • No Objection Certificates (NOCs) from the legal owners such as cooperative housing societies, the lessor of the land in the case of leasehold land, statutory development authorities etc. The role of NOCs does not come into play where the property is situated on freehold land and the entire land is being transferred along with the structure.
    • The title documents of your seller 
All the documents provided by you would undergo a scrutiny that would be conducted by the lawyer of the bank. This legal check is done in order to verify the authenticity and validity of the documents presented by you. 
  1. Validation and Valuation of Property - Banks visit the site of property before they give a go ahead to the loan you have applied for. An expert representing the bank goes out to the site of property to conduct validation and valuation checks. The process of verification of site is done in order to know the following- 
 When the property is under construction –
  • Quality of construction
  • Checks on layout of flats and the area of property to ensure that it is within permissions granted by the governing authority.
  • In order to ensure that the stage of construction is the same as that mentioned in the payment notice given to you by the builder.
  • To ensure that the work-in-progress is satisfactory.
  • To evaluate the property in relation to other deals in the surrounding areas.
  • To ensure that the builder has the requisite certificates to start construction at the site.
When the property is ready for sale or in case of resale –
  • To calculate the age of the building.
  • Checks on quality of construction.
  • Development of the surrounding area.
  • Check on the maintenance of building both internally and externally.
  • To know whether the building will last the loan tenure. You loan eligibility depends on this by a great deal. The loan tenure will be restricted to the maximum age of the property as decided by the bank's engineer and your loan eligibility would bear its impact.
  • To know if there is any existing lien or mortgage on the property.
  • To ensure if the builder has received the requisite certificates for handing over possession of the flat.
  • To evaluate the property in relation to other deals in the surrounding areas.
Thus, validation and valuation of property forms a vital part of checks and scrutinies that are made by banks as substantial amount is involved when it comes to home loan. There are banks who are willing to do the valuation and validation of property before the sanction is made as this would help you save a good deal of time in the event when loans get rejected due to flaws that are raised in this step. This would also help you save on the fees that you ought to pay to banks in order to obtain the sanction. 
  1.  Registration and Signing of Loan Agreement – Once you are done with the above process and your property gets a nod from the bank, the registration, stamping and signing of the loan agreement is done. Here you would also be asked to pay post dated cheques and have to pay stamp duty which is applicable at some banks. 
  1.  Disbursement of Your Home Loan – Once the loan agreements have  been executed, the disbursement of loan comes in to play. As the banks sanction only 85 percent to 90 percent of the cost of the house it is important for you to submit the documents revealing that you have given your part of contribution towards your home. When you go in for a property that is ready for sale or resale then the loan is disbursed in full but when you opt for a property that is under construction part-disbursement of loan may be but then again this varies from bank to bank.

  • Abhilash Nair:
    Is ITR mandatory for home loan documents. Would not Form 16 suffice against it?
    14-Jun-2013 07:42 PM
  • isha:
    Is their any agreement registration required for disbursement? (new rule of govt. from 1st june 2013)

    please advise
    06-Jun-2013 12:22 PM
  • Vishal:
    Thanx for the informative article.

    My property construction has just started. Accordingly I have taken a lesser loan so that I will be able to pay through own savings till the project is completed. My loan has been sanctioned but now the loan agent is saying that I have to pay the entire 'own contribution' before the Ist disbursement. What do I do?
    01-Jun-2013 07:10 PM