A "low interest" loan shouldn't mean you have very little interest in paying it back!
A decade back, the home loan procedure was time-consuming and difficult but not anymore. Online has made it all trouble-free and processing a home loan application is only a few hours away, given that the applicant submits all the required documents properly.
The procedure to take a home loan is simple. Though this varies from one bank to the other (in India), the overall procedure is the same. To help you further, here is a detailed step-by-step guide on how it is done.
The steps to complete the home loan process are as follows:
Step 1: Fill The Loan Application Form & Attach The Documents
Step 2: Pay The Processing Fee
Step 3: Discussion With The Bank
Step 4: Valuation Of The Documents
Step 5: The Sanction/Approval Process
Step 6: Processing The Offer Letter
Step 7: Processing The Property Papers Followed By A Legal Check
Step 8: Processing A Technical Check & The Site Estimation
Step 9: The Final Loan Deal, Signing The Agreement, & Disbursal
The procedure to take Home Loan begins with an application form. This loan application will require a few basic information about the applicant. Usually, this includes:
Once the formal application is filled, the next step is to attach all the valid documents required by the bank with it. Usually, this includes the:
Note: Most banks offer doorstep service. Hence, an applicant doesn’t have to spend his or her time waiting at the bank and having the documents submitted. However, a few banks might still want the applicant to visit their respective workplace at least once.
There are three important reasons banks ask for all the above proofs from an applicant:
1. Income Proof: This is the applicant’s actual proof of income. This usually encloses a copy of the each:
Note: You may also be asked to submit a few other employment details but this differs from one bank to the other. Overall, the documents mentioned above are mandatory.
2. Identity (or ID) Proof: This is the applicant’s proof of identity. This document should have a clear photograph of the person. It can be a copy of any one of the below:
3. Age Proof: This is the applicant’s proof to validate his/her DOB (Date of Birth) and age. The applicant can submit a copy of any one of the documents mentioned below:
Driving license of the applicant
4. Address Proof: This is the applicant’s proof to authenticate his or her residential address. The applicant can submit a copy of any one of the documents listed below:
5. Employment Details: This encloses the applicant’s employer information. If the organization the applicant is working for, has a standard website, then that will do.
However, if the firm is not popularly known or is small, then the applicant has to submit a summary of the company profile, which usually includes the below:
6. Educational Proof: This is the applicant’s piece of evidence of his or her education information. This can usually include a copy of any one of the documents listed below:
7. Bank Statements: This is the applicant’s bank statements of the transactions happened in the last six months. This is asked by the bank:
8. Property Details: This is the home property documents for which the applicant applies a loan for. If the property has been finalized, then the applicant has to submit all the necessary details to the bank.
Once the formal application and document submission process is done, the applicant has to pay the processing fee to the bank. This is the amount collected for maintaining the applicant’s loan account. It includes sending some confidential paperwork (like IT certificates, post-dated cheque, etc.) every year.
The processing fee of a bank usually:
Say, for example, the applicant has applied for a home loan of Rs. 15 lakh, then the processing fee will be Rs. 3,750 (at 0.25%) and Rs. 7,500 (at 0.50%) respectively.
A commission is then generated by the bank to the agent handling the applicant’s home loan process, which to an extent is taken from the processing fee paid by the applicant. Though most banks have a proper fee structure, it can be negotiated. There is no crime in trying to bargain with the processing fee.
Note: Every bank will have a processing fee for a loan. However, there are banks that offer zero processing fee home loans. Well, don’t fall for this because this advantage can call for a higher rate of interest, stamp duties, and other legal charges.
Once the applicant has completed the application and documentation process, he or she has to wait until the bank or the respective financial company checks the papers. It usually takes about 1-2 days or even less if the submitted paperwork is correct.
However, there might be times when the bank might want the applicant to pay a visit to the bank for a face-to-face interaction before the loan is sanctioned. This is done to collect more details about the applicant and to make sure if he/she will be able to repay the loan with the interest amount.
Keep in mind that millions of people apply for home loans on a daily basis and to ensure that bank approves the paperwork as soon as possible, the applicant has to be genuine in the entire procedure.
Any fake document or fraudulent activity is unacceptable by the bank. It is a criminal offense and can lead to bigger troubles. As soon as the application form & documents are submitted, and the processing fee is paid, the bank authority then evaluates them.
A bank examines the following details of an applicant:
Note: A bank representative pays a visit to the applicant’s residence or workplace to verify his/her details. At times, the references listed by the applicant in the form are also checked. This enables a clear trust between both the parties.
The approval or sanction part is one of the most crucial stages of a home loan process. This can either have a fruitful result or can be rejected. It all comes down to the bank. If it is not satisfied with any of the documents provided by the applicant, the probability of approval turns less. However, if everything goes well, the loan will be sanctioned or approved in no time.
A bank usually deep-checks the applicant’s following documents to approve a home loan:
Based on the information mentioned above, the bank finalizes and communicates the maximum loan amount the applicant can receive. Finally, this proceeds with an official sanction letter. It can be either unconditional or can contain a few policies, which has to be fulfilled by the applicant before the disbursal.
As soon as the loan is sanctioned or approved, the bank then sends a certified offer letter, which mentions the following details:
Once the applicant agrees to the offer letter, he or she has to sign a duplicate copy of the offer letter, which is for the bank’s records. Years back, this usually came with a specific administrative fee. However, it is no longer practiced.
Note: Make sure to read all the details carefully. Check if the rate of interest is applied as per the percentage discussed and decided with the bank. Remember that the interest rate on the home loan can be negotiated. Always give it a try and use this as the best for your advantage.
Once the offer letter is officially accepted by the applicant, the bank next concentrates on the home property he/she intends to purchase. Even if it is not finalized, the applicant can request for a time duration to select one.
Once the property is selected, the applicant has to:
The original property papers will normally include the following details:
Note: The original property papers stay with the bank until the home loan is completely repaid.
Once the property papers are submitted, the bank then validates them for authentication. This process is termed as “legal check.” In fact, the sale papers between the applicant and the seller are verified.
These original documents are sent to the bank’s lawyer for an in-depth check. Only when the lawyer approves all the submitted documents as clear, then everything related to home loan is good. If not, the applicant will be asked to submit a few more documents for verification.
Every bank is highly cautious with the loan it lends and the home property it plans to finance. Hence, a technical check or a double check is further done. The bank sends a property expert to check the premises an applicant intends to buy.
Now, this person could either be an employee of the bank or a civil engineer or someone from an architect’s firm.
The visit to the “site property” is basically conducted for verifying the details given below:
If the construction is already for resale or in a ready stage, then the representative will check for:
Note: A bank conducts a proper technical check to understand the construction progress and to gain the trust of the applicant. This is an important phase of the home loan process and hence, cannot be skipped by the applicant.
Also bear in mind that there will be a fee for this technical check, which may be either charged separately or might be taken from the upfront fee.
Once the expert completes the technical inspection of the site, it is then followed by determining and checking the property’s overall value. This is basically done because of the increasing malpractices. There have been multiple cases where the applicants have shown property purchases from the associated entities at extremely inflated rates just to acquire cheap loans.
Thus, the risk for a bank to lend the money to his/her applicant has become high. However, a site’s estimation can help the bank to determine the total loan amount so that the sanction is straightforward.
Note: A few banks charge an extra fee for the estimation check as well. It is covered either by the upfront amount or the applicant might be asked to pay separately.
Once the technical and site’s estimation is done by the bank, and the lawyer clears all the paperwork, the next step is the final registration of the deal. The lawyer of the bank finalizes the loan documents, drafts them, and have them stamped as well as signed.
After the paperwork is complete, the applicant has to sign the agreement of the home loan. He/she has to submit the cheques (post-dated) for the initial 36 months or the duration both the parties have agreed upon.
After this, the original property papers have to be handed to the bank. Some banks can even create a video recording of the applicant handing over these papers to the bank. This is for the bank’s security, safety, and proof.
This stage is known as the MOE (Memorandum of Execution) and has a stamp duty based on the state the applicant applies at. This duty is paid by the applicant.
Once the applicant signs the papers and everything is legally clear, the loan amount is given via cheque. However, prior to this, the applicant has to submit a few essential documents to the bank, as these will serve as his/her personal contribution to the home property.
If the applicant is trying to source some more funds from outside, then the pieces of evidence have to be submitted as well. Only then, the bank releases the loan’s part-disbursement. The cheque is always under either the seller or development/society authority or builder.
Nevertheless, there can be a few exceptional cases too. Say, for instance, the applicant has made excess payment from his/her own account, then the cheque is handed to him/her directly from the bank.
Note: Make sure not to delay the house loan process after approval because every day counts here. The moment the loan is sanctioned, the interest rates are charged from that day onwards. So, every single day costs! Hence, ensure that the cheque is taken on the mentioned delivery date. Avoid paying additional interests.
Here are a few important questions often asked by the applicants regarding the loan disbursement.
A loan is disbursed based on the construction stage of the house property. In the case of ready/resale, the loan disbursement is full, meaning that the bank delivers full or complete payments to the recipient via cheque.
If the house is “under construction”, the loan payment is typically done in parts, which is officially termed as a part disbursement. When the loan is disbursed partly, the bank will not begin the EMIs right away. Since the EMI is calculated against the total loan sum at the agreed interest rate for a given duration, the repayment dues on part disbursement may not be applicable in the beginning.
To resolve this, banks charge SI (Simple Interest) on the loan amount that is partly disbursed. Say, for example, the applicant has sanctioned a loan amount of Rs 15 lakh. For some reasons, the home is still under the stage of construction, and this has made the bank to only disburse Rs. 8 lakh (for the time being), then the charged interest will only be on the Rs. 8 lakh and not on Rs. 15 lakh. This method continues until there is a final disbursement taking place and is termed as “pre-EMI.”
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