- Date : 21/10/2020
- Read: 6 mins
Home loan disbursement process along with the list of documents required, formalities performed by the lender, repayment arrangement, processing fee, housing loan, income tax return, credit rating.
One of the biggest aspirations of the average Indian family is owning a house. Be it buying a piece of land and building a house or booking an apartment in one of the numerous housing projects across India, owning a dream house seems to be one of the primary goals of every Indian. Whether you are building the largest private residence in Mumbai’s Cumballa Hill or being allotted a house under the Pradhan Mantri Gramin Awaas Yojana, living in a house that you own is indeed a dream come true. Although you probably don’t need much financial support to own that $2 billion Mumbai property or the aforementioned government funded house; for almost everything in between, homeowners often look for home loans to buy their dream home.
In view of this demand, the home loan sector is teeming with lenders, be it banks, housing finance companies and other non-banking financial institutions. These lenders are ready to meet your financial requirements and offer home loans to you at attractive rates of interest. Although the exact process of home loan disbursement varies from lender to lender, there is a certain amount of uniformity in their lending formalities. Let us look at the standard procedure of home loan disbursement.
Related: 5 reasons to go for home loan refinance
1. Pre-application: We can assume that you have done the due diligence in terms of the apartment or house that you want to book, how much down payment you can pay, how much loan money you would require, which lender is offering the best rates and how will you pay the equated monthly instalments. You would also have to make sure that you qualify for a home loan. You can know more about the eligibility by visiting the branch of a lender or by visiting their website. Once you are satisfied with your initial research you are ready to go ahead and approach your shortlisted lender.
Related: When is it a good idea to take a top up home loan?
2. Documentation: Home loan application often requires elaborate documentation. The various documents that you may need to fill/produce as a part of the loan application process are:
a. The application form is the first and the most elementary requirement for a home loan. The form will vary from lender to lender but the information in it is mostly similar everywhere. It will ask for your personal information, business or professional information, your property, assets, liabilities, financial performance over the last few years etc.
b. Compliance documents: You will also have to present documents that you prepare and submit for compliance purposes like Income Tax Return (generally for three years), Computation of Income or Annual accounts, Form 16 and other similar documents.
c. Proof of Income: You will also have to keep handy documents like salary slips (generally for last three to six months), bank statements (again for six months), business income details etc. The lender will use the bank statement to find out your average balance held, regular payments, cheques bounced etc.
d. Age proof: Proof of age can be documented like voter’s ID, PAN card, Aadhaar Card, Ration card, Passport, Driver’s Licence, School leaving certificate etc.
Related: Home loans set for floating interest rate revamp from April 2019
e. Address proof: Address proof can be any document that has your preferred address mentioned in it. Many of us may stay in a location other than what is mentioned in our Passport, Driver’s license, Aadhaar Card etc. In such a case, we have to provide current address proofs like Electricity bill, Telephone bills, Tenancy Agreement etc.
f. Employment details: The lender needs to ensure that you have the means to repay the loan and your employment details are often the way to ascertain that. It could be an acknowledgement letter from your employer or your appointment letter or in case of business, details of your business like nature of the business, notable customers, profit, sales etc.
g. Property documents: Property document required would vary depending on the type of property. Agreement and NOC from builder, land and building tax paid receipts, building plan, cost estimate, allotment letter, builder's bank details etc. are some of the property documents typically required while applying for a home loan.
3. Other Formalities: Apart from asking for the filled application form and the supporting documents, the home loan disbursement process includes various other smaller activities.
a. The lender will charge a processing fee from you and it varies from lender to lender. It generally ranges from 0.25% to 0.5% of the loan amount. This is a type of maintenance charge for maintaining your loan account, sending you income tax certificates, maintaining post-dated cheques, providing statements etc.
b. Personal interaction with the lender is another formality that many lenders insist on. This helps them to be sure of your repayment capacity. Generally, the lender takes a turnaround time of 2-3 days after you submit your application. However, some of them prefer to have a face to face interaction before they decide on the application.
c. Verification of the available information is done by the lender on the receipt of your application. They will send representatives, sometimes third-party agencies, to verify your address, occupation, phone number and as much of your information as they can.
d. Credit appraisal is the stage where the lender finalises your creditability based on the information you provided and the verification conducted. Information like your CIBIL score may also be taken into consideration. At this stage, the lender will decide whether or not to approve your loan application and how many loans should be sanctioned.
4. Once the loan is sanctioned, you will receive an offer letter which will mention the loan amount, the rate of interest, tenure, payment mode, other general and special terms and conditions. You will accept the offer and intimate the same to the lender, often in the form of a signed duplicate copy of the loan offer letter. The time required varies from lender to lender. However, generally, it takes 3-4 weeks to get the loan sanctioned. Delay or rejection of home loan application can be due to any defect in the title of the property or due to insufficient documents submitted along with the application. On your part, apart from submitting a complete form, correct and accurate information and records, you can confirm if anyone else in the same apartment has availed a home loan, that there are no dues pending from the society and all construction permissions are in place.
Related: When is it a good idea to take a top-up home loan?
After the completion of home loan disbursement, you need to ensure a timely repayment schedule. If you choose ECS payment you will have to instruct your bank to deduct the EMI in favour of the home loan provider. You may also be opting for the post-dated cheque. In either case, you will have to make sure that you keep the minimum balance required to honour the ECS request or the post-dated cheque. This should sort your repayment process and ensure that your dream of owning a house is achieved. Take this quiz to check what you know about home loans.
One of the biggest aspirations of the average Indian family is owning a house. Be it buying a piece of land and building a house or booking an apartment in one of the numerous housing projects across India, owning a dream house seems to be one of the primary goals of every Indian. Whether you are building the largest private residence in Mumbai’s Cumballa Hill or being allotted a house under the Pradhan Mantri Gramin Awaas Yojana, living in a house that you own is indeed a dream come true. Although you probably don’t need much financial support to own that $2 billion Mumbai property or the aforementioned government funded house; for almost everything in between, homeowners often look for home loans to buy their dream home.
In view of this demand, the home loan sector is teeming with lenders, be it banks, housing finance companies and other non-banking financial institutions. These lenders are ready to meet your financial requirements and offer home loans to you at attractive rates of interest. Although the exact process of home loan disbursement varies from lender to lender, there is a certain amount of uniformity in their lending formalities. Let us look at the standard procedure of home loan disbursement.
Related: 5 reasons to go for home loan refinance
1. Pre-application: We can assume that you have done the due diligence in terms of the apartment or house that you want to book, how much down payment you can pay, how much loan money you would require, which lender is offering the best rates and how will you pay the equated monthly instalments. You would also have to make sure that you qualify for a home loan. You can know more about the eligibility by visiting the branch of a lender or by visiting their website. Once you are satisfied with your initial research you are ready to go ahead and approach your shortlisted lender.
Related: When is it a good idea to take a top up home loan?
2. Documentation: Home loan application often requires elaborate documentation. The various documents that you may need to fill/produce as a part of the loan application process are:
a. The application form is the first and the most elementary requirement for a home loan. The form will vary from lender to lender but the information in it is mostly similar everywhere. It will ask for your personal information, business or professional information, your property, assets, liabilities, financial performance over the last few years etc.
b. Compliance documents: You will also have to present documents that you prepare and submit for compliance purposes like Income Tax Return (generally for three years), Computation of Income or Annual accounts, Form 16 and other similar documents.
c. Proof of Income: You will also have to keep handy documents like salary slips (generally for last three to six months), bank statements (again for six months), business income details etc. The lender will use the bank statement to find out your average balance held, regular payments, cheques bounced etc.
d. Age proof: Proof of age can be documented like voter’s ID, PAN card, Aadhaar Card, Ration card, Passport, Driver’s Licence, School leaving certificate etc.
Related: Home loans set for floating interest rate revamp from April 2019
e. Address proof: Address proof can be any document that has your preferred address mentioned in it. Many of us may stay in a location other than what is mentioned in our Passport, Driver’s license, Aadhaar Card etc. In such a case, we have to provide current address proofs like Electricity bill, Telephone bills, Tenancy Agreement etc.
f. Employment details: The lender needs to ensure that you have the means to repay the loan and your employment details are often the way to ascertain that. It could be an acknowledgement letter from your employer or your appointment letter or in case of business, details of your business like nature of the business, notable customers, profit, sales etc.
g. Property documents: Property document required would vary depending on the type of property. Agreement and NOC from builder, land and building tax paid receipts, building plan, cost estimate, allotment letter, builder's bank details etc. are some of the property documents typically required while applying for a home loan.
3. Other Formalities: Apart from asking for the filled application form and the supporting documents, the home loan disbursement process includes various other smaller activities.
a. The lender will charge a processing fee from you and it varies from lender to lender. It generally ranges from 0.25% to 0.5% of the loan amount. This is a type of maintenance charge for maintaining your loan account, sending you income tax certificates, maintaining post-dated cheques, providing statements etc.
b. Personal interaction with the lender is another formality that many lenders insist on. This helps them to be sure of your repayment capacity. Generally, the lender takes a turnaround time of 2-3 days after you submit your application. However, some of them prefer to have a face to face interaction before they decide on the application.
c. Verification of the available information is done by the lender on the receipt of your application. They will send representatives, sometimes third-party agencies, to verify your address, occupation, phone number and as much of your information as they can.
d. Credit appraisal is the stage where the lender finalises your creditability based on the information you provided and the verification conducted. Information like your CIBIL score may also be taken into consideration. At this stage, the lender will decide whether or not to approve your loan application and how many loans should be sanctioned.
4. Once the loan is sanctioned, you will receive an offer letter which will mention the loan amount, the rate of interest, tenure, payment mode, other general and special terms and conditions. You will accept the offer and intimate the same to the lender, often in the form of a signed duplicate copy of the loan offer letter. The time required varies from lender to lender. However, generally, it takes 3-4 weeks to get the loan sanctioned. Delay or rejection of home loan application can be due to any defect in the title of the property or due to insufficient documents submitted along with the application. On your part, apart from submitting a complete form, correct and accurate information and records, you can confirm if anyone else in the same apartment has availed a home loan, that there are no dues pending from the society and all construction permissions are in place.
Related: When is it a good idea to take a top-up home loan?
After the completion of home loan disbursement, you need to ensure a timely repayment schedule. If you choose ECS payment you will have to instruct your bank to deduct the EMI in favour of the home loan provider. You may also be opting for the post-dated cheque. In either case, you will have to make sure that you keep the minimum balance required to honour the ECS request or the post-dated cheque. This should sort your repayment process and ensure that your dream of owning a house is achieved. Take this quiz to check what you know about home loans.
