FINANCE TIP OF THE DAY
Can you afford your loan?!
Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer. As a thumb rule, remember not to let your credit exceed 40% of your income!
Home loan sanction letter and its importance!
In the whole process of home loan right from the application to the final disbursement the sanction letter from the financing agency holds great significance. The bank undertakes a tedious process of scrutinizing all documents submitted by the applicant and makes sure of aspects involved before sending the letter of sanction to the applicant. The first time home loan applicant must understand the various features and content of this sanction letter before signing the loan agreement with the housing finance company.
The Sanction Letter
However one must categorically understand the distinct difference between a sanction letter and the actual disbursement of the loan to buy the house. The sanction letter is signed by the concerned authority to inform the applicant that he has been found suitable for a home loan and the same shall be approved for him subject to fulfilling the remaining formalities with the bank.
The sanction letter is based on the findings of the bank in the following aspects:
- Credit history of the applicant.
- Current income of the applicant.
- Repayment capacity of the applicant.
- Correctness of all personal documents submitted by the applicant. Legal validity of the property being purchased through the home loan applied for.
- The current and anticipated market value of the property which hence forth be mortgaged to the bank as a security.
In most cases the banks charge a processing fee for all the efforts that is put in till the stage of reaching the sanction letter. However in many cases this processing fee is refunded after the actual approval of the loan.
Contents of the Sanction Letter
The sanction letter from the bank stating the bank’s readiness to proceed with approval of the home loan has the following content:
- The total amount of loan sanctioned.
- The tenure for repayment of the loan.
- The type of interest that will be applicable for that loan.(Whether fixed, floating or hybrid type of loan arrangement)
- The actual rate of interest that is prevailing and applicable at the time of disbursement of the loan.
- The base rate at which the interest is being calculated.
- The EMI and pre EMI amounts wherever applicable.
- The period of validity of this sanction letter.
- The detailed terms and conditions that the bank desires to incorporate in the home loan agreement.
Validity of the sanction Letter
The borrower must note that the sanction letter in itself is not a legal approval of the loan and he still has to submit further documents and sign the loan agreement before the amount can be disbursed to him. The typical validity of a sanction letter is about 6 months and in case the loan is not availed during this time the sanction shall lapses and the whole process has to be reworked in case the applicant approaches the bank.
It is in the interest of the applicant to keep the entire document work that is required for further processing ready at this stage so the process can be completed at the earliest. At times the applicant may have to show a copy of the sanction letter to the developer of the project where he intends to purchase the house in order to seek some more time to start paying the leftover dues.