The 9-Step Guide For Home Loan Procedure

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.

What Is The Procedure For Home Loan?

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

Step 1: Fill The Loan Application Form & Attach The Documents

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:

• The personal details of the applicant (Name, Phone number, etc.)
• The residential address of the applicant
• The monthly or yearly income of the applicant
• The educational information of the applicant
• The employment details of the applicant
• The property details on which the loan is applied
• The estimated cost of the property
• The present means of financing the home property

Required Documents For Home Loan Procedure

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:

• Applicant’s income proof
• Applicant’s identity (or ID) proof
• Applicant’s age proof
• Applicant’s address proof
• Applicant’s employment details
• Applicant’s educational proof (school/diploma/degree certificates)
• Applicant’s bank statements
• Property details on which the loan is applied (if finalized)

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:

• One: to authenticate the applicant.
• Two: to obtain valid clues on the applicant’s financial health.
• Three: to check if the applicant is eligible and has sufficient income to pay back the loan.

Explanation Of Each Document

1. Income Proof: This is the applicant’s actual proof of income. This usually encloses a copy of the each:

• ITR (Income Tax Returns) for the last 3 years
• Annual accounts/Computation of Income (if any)
• Salary slips for the last six months
• Form 16 or Form 16A for the last three months
• Bank statements for the last 6 months
• Other bank accounts (active) if it reflects the current income

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:

• PAN card of the applicant
• Driving license of the applicant
• Aadhaar card of the applicant
• Voter Id of the applicant
• Passport of the applicant
• Ration card - if it contains the applicant’s photograph

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

• PAN card of the applicant
• School/college transfer certificate of the applicant
• Passport of the applicant
• Voter Id of the applicant
• Driving license of the applicant
• Ration card 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:

• Driving license of the applicant
• Aadhaar card of the applicant
• Voter Id of the applicant
• Passport of the applicant
• Ration card of the applicant

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:

• The location of the company the applicant is working for.
• The business sector the company features in.
• The nature of the firm.
• The company’s turnover and profit.
• The number of employees working in the company.
• The number of branches the company holds (with the headquarters).
• The company’s competitors.
• The company’s customers.

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:

• School certificate of the applicant.
• College graduation certificate of the applicant.
• Diploma certificate of the applicant.

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:

• To Check The Activity Level: This applies to a self-employed individual. It gives a proper evidence of the business activities done through the bank.
• To Check The Average Balance: A sufficient amount of balance maintained by the applicant can raise a green flag for the loan sanction. So, a bank investigates this to see the saving and spending habits of the applicant.
• To See The Cheque Returns: This is usually a small fee debited the bank saying that the cheque handed out by the applicant was actually returned by the bank. The more the cheque returns, the lesser are the chances for the loan to be sanctioned.
• To Look For Cheque Bounce: Any cheque(s) that goes on a bounce is visible in the bank’s statement. Note that every bank has certain norms on how much of that can be acceptable in a one-year period. The more, the worse.
• To Check For Consistent Periodic Payments: If there are any periodic payments done to the other financial institutions or banks, then it is a clear sign that there exists a liability. In such cases, the applicant has to provide complete details.
• To Check For Investments: Any investment made by the applicant will also be helpful while sanctioning the loan. In fact, this assists a bank to assess the abilities of an applicant to pay off some amount as a down payment.

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.

Step 2: Pay The Processing Fee

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:

• Ranges from 0.25 % to 0.50 % of the requested loan amount.

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.

Step 3: Discussion With The Bank

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.

Step 4: Valuation Of The Documents

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:

• Residential address (previous and current)
• Place where he/she is employed
• Credentials of the employer
• Workplace contact number
• Residence contact number

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.

Step 5: The Sanction/Approval Process

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:

• The qualification, age, and experience details.
• The transactions made with the applicant’s bank.
• The monthly and yearly income.
• The current employer and the type of job he/she pursues.
• The nature of the business (applicable only for a self-employed).
• The ability to repay the loan amount with the set interest rate.

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.

Step 6: Processing The Offer Letter

As soon as the loan is sanctioned or approved, the bank then sends a certified offer letter, which mentions the following details:

• The loan amount that is being sanctioned.
• The interest rate on the total loan amount.
• Whether the interest rate is variable or fixed.
• The loan’s tenure details.
• The mode of loan repayments.
• Terms, policies, and conditions of the home loan.

The Acceptance Copy

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.

Step 7: Processing The Property Papers Followed By A Legal Check

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:

• Submit all the original property documents to the bank. It remains with them until the loan is repaid. Also, this serves as the security towards the home loan the applicant has applied for.

The original property papers will normally include the following details:

• The name of the seller.
• The identification and address proofs of the seller.
• The name of the property.
• The address of the property.
• The chain of written documents if the seller isn’t the primary or actual owner.
• NOC (No Objection Certificate) from the primary legal owner (if any).
• NOC from the statutory development board representative & cooperative housing society.
• If the land is already on a lease, the bank will require a NOC from the lessor as well.

Note: The original property papers stay with the bank until the home loan is completely repaid.

Legal Check

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.

Step 8: Processing A Technical Check & The Site Estimation

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:

• The stage in which the construction is.
• Quality of the construction.
• Work progression.
• The time required to build the house.
• The layout of the house and whether the governing authority has permitted it or not.
• If the builder has valid requisite certificates for construction on the land.
• Property valuation and the environmental areas.

If the construction is already for resale or in a ready stage, then the representative will check for:

• The building’s age.
• The internal or external property maintenance.
• The loan tenure and if the building falls within the applicant’s loan eligibility criteria.
• The quality of the construction.
• The surrounding area.
• The valid requisite certificates to hand over the flat/house’s possession to the buyer.
• The existing mortgage on the home property.
• The property valuation.
• The building’s approval plans, following the government laws, etc.

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.

The Site’s Value Estimation

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.

Step 9: The Final Loan Deal, Signing The Agreement, & Disbursal

The Final Loan Deal

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.

Signing The Loan Agreement

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.

The Loan Disbursal

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.

FAQS On Loan Disbursement

Here are a few important questions often asked by the applicants regarding the loan disbursement.

1. What Is Full 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.

2. What Is Part Disbursement?

   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.”

Key Points To Remember

• Research for the banks offering the cheapest home loans.
• Read the bank’s eligibility criteria carefully before entering the procedure to take home loan.
• Keep all the ID proofs, address proofs, employment proofs, and other details handy.
• Do not fake any of the documents, as this will only call for serious troubles.
• During the face-to-face meeting with the bank representative, ensure to carry the original documents.
• Just because the applicant is eligible for a home loan, it doesn’t mean he/she can borrow a higher sum.
• The interest rates are negotiable. So, always use this opportunity for the best.
• There is a separate fee for processing the loan, reality check, site estimation, and other administrative works.
• Do not skip any stage during the valuation and verification process.
• Read every loan document carefully before signing.
• Once the loan is sanctioned, the original property papers are handed over to the bank and remain with them until the loan is completely repaid.
• It usually takes about two weeks to complete the process of home loan, provided that the documents submitted by the applicant are valid.