Buying a home can be stressful for many and a decision that needs careful consideration mostly because home purchase is usually the biggest financial commitment a person makes in his or her lifetime, particularly when planning to take a home loan to fund the purchase of the home. This article may not reduce the stress of searching and shortlisting a property that one can call home, but it will certainly help one understand the home loan procedure and make the process of applying and availing of a home loan a seamless one.
Avail a home loan can be a tedious and time-consuming task, particularly for first-time applicants who don’t know much about the product. It entails a reasonable amount of paperwork. Before making a home loan application, it is important that the applicant gets acquainted with the ins and out of the whole process and how housing loans work. Knowing the basics can also help you avoid home loan application rejection or getting payment, charges or EMI-related surprises post the sanction or disbursement of the availed home loan amount.
To make it easier for everyone to understand the process of applying for a housing loan in India, here is a step-by-step guide.
How to Apply For a Home Loan? Understanding The Process
Identify the Right Lender for Your Home Loan Requirements
It is imperative to find the right lender/bank that meets all the requirements, offers a competitive interest rate, has good credibility and good post-approval customer support.
Keeping Documentation Ready
Although the documents required may differ from lender to lender, most of the personal and property documents required are the same and should be gathered well in advance before applying for a home loan.
Fill out the Loan Application Form
The actual home loan process begins once you fill in an application form. This form may differ from lender to lender. However, know that the form is a pre-requisite and generally requires personal details, such as name, address, address proof, PAN card, Aadhaar details, education details, professional details with income proofs, bank statements, ITR of last three years, etc. If you have already identified the property, then details related to the property are also required.
Once the application form has been submitted, a representative from your chosen financial institution will get in touch with you and discuss document submission with you.
Evaluation and Legal Verification Of Documents
Your chosen lender may either ask you to visit the branch for a face-to-face discussion or send their representative to your home to verify details related to the application. Based on the documents submitted, your lender will do a background check, which will include checking your CIBIL score, repayment capacity, etc. A credit score of 750 and above is considered good for loan approvals. The application moves on to the next step once your chosen lender finds your record to be satisfactory in terms of complying with the loan conditions.
On successful completion of the above steps, the bank will review and either approve your application or reject based on the outcome of the verification of documents and applicant details. Once approved, the bank provides a sanction letter stating the loan details, such as approved loan amount, interest on the loan, home loan tenor, type of interest rate applicable on the loan along with additional conditions, policies, and charges, etc.
Post-approval of the loan, the bank conducts its legal due diligence to ensure the property is clear of any legal dispute or obligation. Since a home loan is a secured loan, the house is used as collateral with the original documents of the property and remains in the legal custody of your lender until the housing loan has been repaid in full. Bank officials and representatives of financial institutions also do a physical verification of the property before finalizing the loan agreement.
Final Loan Offer and Agreement Signing
Your chosen sender will send a final loan offer and agreement after all necessary legal checks and procedures have been concluded. The loan agreement has to be signed and submitted in person.
The last step in the home loan process is the disbursement of the loan amount after the signing of the agreement and once the borrower has accepted all bank conditions related to the loan application. The amount of the loan is disbursed via demand draft or cheque towards the seller of the property. In some cases, if the applicant has made excess payment to the builder then in that case the loan amount is disbursed in the name of the applicant.
Payment of Processing Fee
The lender will deduct the processing fee from the final disbursal amount. The exact fee here varies from lender to lender and, at times, even application to application. Typically, it ranges from 0.25% to 6% of the loan amount.