Today millions of urban Indians are opting for home loans to purchase their dream properties. However, not everyone is acquainted with the process of procuring a home loan. Consequently, many a loan application gets rejected and many a buyer finds himself in a quandary after securing the loan because he is unable to pay off his debt.
It is therefore imperative for homebuyers to be well versed with banks’ criteria for disbursing home loans. It is also important that they know their monetary obligations to the bank or financial institution funding their purchase to avoid a showdown in the future.
Read on to know more about the home-loan procedure and your loan eligibility and repayment liabilities.
Step 1: Applying for a home loan
The procedure for a home loan begins with a formal application to the bank. In addition, you are required to provide your personal details for the bank to scrutinize and to assess your loan eligibility. Most banks will generally ask you for the following documents:
Identity proof
Address Proof
Age proof
Proof of educational/ professional qualifications
Employment details
Bank statements
Proof of income
Pan Card
Property details (in case it is finalized).
Step 2: Payment of loan processing fees
Your bank will charge you a non-refundable loan-processing fee. Most banks charge between 0.5 percent and 1 percent of the loan amount as processing fees. Banks use this amount for commencing and maintaining the home loan process.
Of late, some banks have taken to waiving loan-processing fees to attract borrowers. You can negotiate with your bank and try to avail the benefit. However, not all banks will be open to relinquishing the processing fees.
Step 3: Applicant’s scrutiny and verification
After you have submitted your application and the processing fees, the bank will evaluate your case and decide the amount you are eligible for.
You will be required to personally meet the bank’s officials, generally within two to three working days from submitting the application, so that they can gauge your repayment capacity.
Post the personal interaction, the bank will proceed to verify all the facts and credentials you provided in your loan application. Bank representatives will visit your workplace and place of residence to validate the information you have provided in your application.
Step 4: Evaluation of repayment capacity
Verification of the borrower’s repayment capacity is the most crucial part of the home loan process. The bank may sanction or deny your home loan request depending on how satisfied it is with your ability to repay the principal (with interest) on time.
In case the bank issues a conditional sanction, all the stipulated conditions will have to be satisfied before the loan is disbursed.
Step 5: Home loan offer letter
At this stage the bank proceeds to draft an offer letter with the following details:
You need to submit a signed acceptance copy to the bank if the contents of the offer letter are acceptable to you. An acceptance copy is essentially a duplicate of the offer letter which the bank keeps for its records. Administrative fees (if any) levied by the bank needs to be paid at this stage.
Home Loan Process
Step 6: Property verification
Prior to disbursing the loan, the bank will verify the property in question. You will be required to submit original copies of the title deed, no objection certificate and other documents the bank might ask for.
A legal check will be conducted on the property to ascertain that the title is clear and that there is no dispute.
Technical valuation of your property will also be conducted by the bank. In case of an under-construction property, the bank will scrutinize the location of the project, the stage, quality and progress of construction, etc and evaluate the property on the basis of established parameters.
If a property is ready to be sold or is being resold, the bank evaluates its age, ownership, quality of construction, maintenance, locality and legal clearances. Bank employed property valuators assess its value on set parameters and decide on the amount of loan to be sanctioned.
Please note that your home loan is a secured loan and the property itself is the collateral. Therefore, your documents will be returned to you only once the entire loan amount has been repaid.
Step 7: Home loan disbursal
Once all the above-mentioned formalities have been satisfactorily fulfilled, the registration process for the home loan commences.
The legal documents need to be prepared in a format approved by the bank’s lawyer on stamp papers of required denominations. Post this, you will be required to submit post-dated cheques for the agreed term and sign the home loan agreement.
The home loan disbursal process will begin after you sign the loan agreement. Depending on the type of disbursal agreed upon (whether lump-sum or in stages), your bank will dispense with the loan amount.