Before applying, know how the sanction and disbursement of home loans differs


If you want to take out a home loan to buy residential property, there is a simple process that banks and other lending institutions follow before they release the loan amount to you.

By V Swaminathan

Finding a home that you can finally call your own takes time. And, once finalized, if you want to take out a home loan to purchase the residential property, there is a simple process that banks and other lending institutions follow before they release the loan amount to you. The process begins with an application for a mortgage, followed by the sanction of the loan and finally the disbursement. Here is an overview of the process leading to the sanctioning and disbursement of home loans.

Loan application process

Initially, the loan seeker has to send the request to the bank first, then the lender decides whether or not to approve the loan. After performing the background check, along with a thorough document check, the bank then sends an approval notification to the loan applicant. In addition, the bank checks the borrower’s income and CIBIL score before approving loans.

Sanction process

Loan sanction is the process by which the bank approves the applicant’s loan. The bank grants loans based on the borrower’s income. If the loans are sanctioned, in this case, the borrower can avail a particular loan amount sanctioned by the bank.

The bank approves loans up to 80% of the value of the property to borrowers. The borrower can avail of an even lower loan amount as compared to the higher eligibility. Loans can be repaid in years for which the terms of reference are being approved.

The sanction process is the approval process in which the bank approves loans and then disburses the loan amount. The sanction confirms that the loan is being approved and therefore the borrower can proceed with the purchase of the property.

Once the bank approves the loans, in this case the bank provides the sanction letter which must be presented to the property developer to confirm the apartment reservation and the applicant can proceed with the deposit payment.

In the sanction process, the borrower receives structured financing and in the case of resale property, the lender disburses the full loan amount at once.

Disbursement process

The disbursement of the loan is made after the sanction of the loans. Thus, the outgoing payment helps the buyer to pay the money to the buyer and therefore the buyer can complete the payment process for the property.

In case of disbursement in the case of resale property, the bank credits the full amount to the borrower’s bank account, while as in the case of new construction, the lender pays the down payment amount to the builder in accordance with to the agreement and also according to the construction work in progress.

Loan disbursement requires the ownership documents for the proposed property as well as the estimated cost of the property. If the price offered by the applicant is deemed appropriate by the bank, in this case the bank sanctions the loans of the borrower after completing the formalities, the bank pays the loan amount to the borrower’s account.

The bank begins collecting the EMI immediately after disbursement of the loans. Installments charged should be paid on time by borrowers. Thus, the loan disbursement after sanction should be done on time in case of home purchase. The buyer can only take possession of the good after full payment for the good.

Loans can be taken out from any of the lenders for new construction property as well as for resale property. Loans can be taken from any of the lenders among private banks, cooperative banks or public sector banks, or NBFCs. Loans can be approved for up to 30 years. The interest rates on loans are in the range of 6.40 to 12% per annum. Loans taken out must be repaid on time by the borrower to avoid a penalty. Thus, the interest rates for the loans are available at competitive interest rates by the borrower.

(The author is CEO, Andromeda Loans and Apnapaisa.com)

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