Home Loan Process
A home loan process broadly involves three steps – application, sanction and disbursal. The first step is quite straightforward; it requires the applicant to submit the home loan application form to a lender along with the required list of documents. The next two steps of a housing loan process i.e. sanction and disbursal, are decisive and hence, important for homebuyers to understand. In this article, we have elaborated on home loan sanction and disbursal and how they are different from each other.
Click here to know the detailed home loan process
Home Loan Sanction
Your home loan approval is based on two aspects, the assessment of your profile and pledged property. It is your profile based on which a financial institution will decide to sanction a home loan. To reach this decision, the lender reviews and verifies each detail you mentioned in the application form including your credit history, employment and income details. Even the authenticity of your documents is verified to remove possible risks. And if everything goes well, you get a sanction letter.
What is a sanction letter?
A sanction letter is a written document that states your home loan has been approved by the lender. A sanction letter may have the following information:
- Sanctioned loan amount
- Loan tenure
- Mode of repayment
- The applicable home loan rate of interest
- Type of interest rate – Fixed, Variable or Hybrid
- Special scheme (if applicable)
- Home loan tax benefits
- Terms and conditions of your home loan
A sanction letter also mentions the date till which the letter will remain valid and the application for disbursement should be provided before that. Usually, the validity period of a sanction letter is six months. Once the validity period is over, you may have to go through the entire home loan application process again.
Now, after receiving a sanction letter you are required to sign and submit the acceptance copy of the same to the lender. But before sending your acceptance, you must go through the entire document carefully and understand what it says. Also, know that along with the sanction letter, you may need to pay a small administrative fee to the lender.
Home Loan Disbursement
Disbursement is the last step in the home loan process in which you get the loan amount from your lender post-property-related verification and evaluation. But this step isn’t as simple as it sounds.
After successful submission of the sanction letter, the lender carries out legal and technical verification of your property. On behalf of the lender, a technical officer assesses the quality of construction, measures the area and notes other relevant details. At the same time, a lawyer checks the authenticity of the property documents to ensure the title is clear. Based on these reports, the lending institution evaluates the cost of the property and sends a loan agreement. If you accept the terms and conditions stated in the loan agreement, the lender disburses the loan amount fully or partially, depending on the terms.
We hope that the information mentioned above has helped you understand the difference between the loan sanction and loan disbursement.
Now, let us address some common questions that people usually have regarding these two processes:
How long does a home loan sanction take?
Home loan sanction usually takes three to four weeks. There may be a delay in the process if the lending institution finds some discrepancy in the loan application.
How much time does it take for the money to be credited after a loan is disbursed?
In most cases, the amount is credited within 24 hours. However, the time may vary from lender to lender.
Can a sanctioned loan be cancelled?
Yes, there may be a possibility that if the formalities after receiving the sanction letter are not fulfilled or if the lender finds it difficult to carry out further verification, the sanctioned loan is cancelled.
Is a sanction letter a final loan agreement?
No, you must remember that a sanction letter is not a legal approval of the loan. This letter only authorizes the applicant about his/her home loan eligibility to avail a certain amount of loan as mentioned in the sanction letter. The final amount received by the borrower is still subject to further verification by the lending institution.
What is the difference between partial and full disbursement?
There are two different modes in which the home loan disbursal may take place:
Full Disbursement: In the case of full disbursement, the lending institution hands over the entire amount to the borrower at once. If you’re buying a house from a builder, the cheque will be made in the name of the builder.
Partial Disbursement: In the case of partial disbursement, the lending institution disburses the loan amount in instalments. For instance, if you’re buying a residential property that is under construction, the disbursement amount will be released in parts based on the stage of construction.