Taking a home loan is the best way to buy a home when there is a financial constraint.
However, are you aware of the processing and disbursement of loans? Here is an overview of how a home loan is applied for, verified, and finally disbursed, so you can be the proud owner of your new property.
Here are the Deets!
Step 1 – Home Loan Application Process
The home loan application process consists of the following features:
- You must start by checking your eligibility criteria based on age, income, employment status, and credit rating. If required, you must work on increasing your sources of income, paying off existing debts, or improving your repayment structure so that you can easily avail of a home loan without a problem. You can use a home loan Eligibility calculator to check whether you are eligible for the home loan.
- The next step is to accumulate and submit all required documents that are required to process a home loan. It includes submitting your identity, address, age, income proof, and property-related documents.
- The third step is to use a home loan EMI calculator to assess how much loan amount you must apply for, the appropriate loan tenure according to EMI and interest charges, and compare different home loan providers based on interest rates and EMI calculations. It is also vital to decide the apt down payment amount, which ranges between 10-20% of your home acquisition expense.
Step 2 – Home Loan Verification Process
Once you submit your home loan application and documents, it is further verified by the financial institutions. Your income stability, age limit, repayment capacity, credit rating, and current debt situation are some of the critical deciding factors in the home loan verification process.
Besides your personal information, the experts will conduct a thorough survey on the kind of property you are interested in, the location and type of property, its true value, and construction value. Besides your documents, a proper investigation will be conducted on the conveyance deed, contribution receipt, and NOC submitted by you.
Step 3 – Home Loan Approval Process
You will soon receive your loan sanction letter if the verification goes through successfully. This letter contains details about the loan amount, interest rate, type of interest (fixed or floating), and loan tenure you are eligible for. The sanction letter is based on the authenticity of your encumbrance certificate, credit facility receipt and agreement letter.
The loan sanction letter also contains details about the home loan amount disbursal procedure – whether it will be processed in one go or in parts, depending on the property or construction details.
Step 4 – Disbursement of Loan Process
Finally, after you get the necessary approvals and have the loan sanction letter, the loan is disbursed. Before the disbursement of loans, you need to check your existing savings and be ready for the down payment. Usually, 10-20% of the property value is accepted by financial institutions as a down payment. However, you must remember the higher your down payment, the lower your loan amount and the interest charges you need to pay toward your home loan. It also means lower monthly EMIs.
- The interest charges are applied after the disbursement of loans, not from the day it is approved.
- The home loan disbursal amount also includes the basic charges you need to pay at the beginning of purchasing your property, like stamp duty charges, processing fees, registration fees, and property tax amounts. Some financial institutions offer a concession on processing fees, while others charge the whole amount as maintenance charges on handling the entire home loan procedure. So, this is an important point to consider before you choose your home loan provider.
- If your property is still under construction, the disbursal process differs, as the amount is disbursed in installments based on the construction process and timeline. In the case of a fully-constructed house, the home loan is disbursed in full to the builder as soon as you get the necessary sanctions.
- Finally, after the disbursal, you have the right to take possession of your property. However, you must understand that the property is still under pledge with the financial institution until you fully repay your home loan. If you have an arrangement of funds, you can prepay or foreclose your home loan. You must consider charges associated with such procedures according to the terms and conditions implied by the provider.
That was all about how a home loan is applied for, processed, and disbursed. You must vigilantly choose your home loan provider and settle for only the best, which can make the home loan application and disbursal process convenient and hassle-free!