We all know now that the easiest way to fund the home of your dreams is to avail yourself of a home loan. With housing loan interest rates at their competitive best, more and more people are opting for home loans to fulfil their dream of owning their own homes. A home loan is a long-term financial commitment and one must have a proper understanding of its financial implications. As a new borrower, you must know in detail the different lending institutions, their home loan interest rates, eligibility criteria for home loans and the home loan procedure to apply for one before deciding. We will discuss here, in brief, the home loan procedure to make your loan journey simple and easy.
Home Loan Procedure
If you have made up your mind about a home loan and are wondering how to apply for home loan, then follow the given steps to kick-start your home loan procedure:
1. Fill up the Application Form
Go to the chosen lender’s website and fill out the loan application form with the required details:
- Name of the applicant/co-applicant
- Your current residential address
- Contact number
- Income of the applicant/co-applicant
- Educational details
- Employment details
- Estimated value of the property
- Property documents and details
2. Attach All Important Documents
Once you have filled in the details on the website, you will also be required to submit some basic documents for a home loan. These supporting documents help to decide your eligibility for the loan once verification is done. Keep the following documents ready with you for this purpose:
- KYC documents (ID proof, Address proof, Income proof, age proof)
- Form no. 16 or latest salary slips (salaried individuals)
- Proof of business running for the last 5 years for self-employed individuals
- Bank statement for the last 6 months
3. Home Loan Processing Fee
After the application is submitted along with all the supporting documents, you will have to pay a one-time non-refundable processing fee for the loan. The banks and housing finance companies (HFCs) charge this for processing your loan application and this charge may range between 0.5%-1.0%.
4. Approval Process
Once the documents provided by the applicant are validated by the lenders, they check for their eligibility for the loan through:
- Credit score – one must have a credit score above 750
- Borrower’s credit profile – should have a good repayment track record
- Borrower’s monthly income – Must have a steady source of income
- Current employment details – salaried individuals should have at least 2 years of total working experience in one place to be eligible for a home loan, for self-employed individuals, will need to show a running business for at least the last 3 years.
- Nature of Business – People employed by Central/State Governments, PSUs, reputed corporates, and MNCs are considered more eligible than the self-employed
- Property to be purchased – the location, cost, and amenities available near the property for which the loan is being availed of.
Once the lender completes all the home loan procedure and is satisfied with all the details and documents, the applicant receives a loan sanction letter.
5. Loan Sanction Letter
The lender satisfied with the verification process approves your home loan and then issues a sanction /offer letter. This letter contains details about the loan, such as:
- The eligible loan amount
- The interest rate offered
- Interest rate is fixed or variable
- Loan tenor
- Terms and conditions of repayment
It is now the duty of the applicant or the borrower to read all the terms and conditions mentioned in the sanction letter carefully and if satisfied, submit a signed copy of it to the bank.
6. Verification of Property
Before the bank/lender disburses the loan amount, it conducts thorough legal and technical checks. They will verify the property you have applied the loan for. The lender will check if the ownership rights of the property are transparent and if the documents submitted and the proofs provided have any conflicting information. During this, they will also evaluate the actual value of the property and whether it is under construction or resale. If the property is under construction, the lender will check the construction stage and quality of the work while for a resale one, they will check the age and maintenance of the property. In case of resale, the bank may also check if the property has been mortgaged before.
7. Loan Disbursal
Once all verification is complete, the home loan agreement is drawn. On the signing of this agreement, the process of home loan disbursal begins. The total disbursal process may take some time and can vary from lender to lender. Generally, it takes 3 to 4 weeks for the disbursal.
Before you get into the home loan procedure, do the given to avail of the home loan easily:
- Do Thorough Research – Research the internet to find the lender offering the lowest interest rates.
- Down Payment –Sizeable down payment lowers the loan amount required, thus giving lenders confidence about your repayment ability.
- Interest Rates – Whether floating or fixed interest rates, select the interest rate that would suit you best.
- CIBIL/Credit Score – Maintain a 750+ CIBIL or credit score for quick loan approval and sanctioning.
- Maintain FOIR Below 40% – Keep your Fixed Obligation to Income Ratio (FOIR) below 40% by closing off other small loans and EMIs and increase your credibility with the lender
- Go for Joint Home Loans –Joint home loan with a spouse helps to avail of a larger loan amount, lower interest rates and tax benefits to both
- Documents for Home Loan – Keep all KYC, Property and Income documents ready to avoid all last-minute hassles.
- Other Charges – Know that lenders charge a processing fee for the loan application and other charges like pre-closure charges. Get clarity on these charges.
The home loan procedure is quite simple if you follow the mentioned steps. So, if you are thinking of buying a home, opt for a home loan, keeping in mind the above factors and follow the simple home loan procedure for a hassle-free experience.