The prospect of buying your own house is exciting and—at the same time—rather frightening as well.
It involves a huge investment on your part. You apply for a large amount as loan, and commit to a long term of repayment. You’ll have to plan thoroughly so you can keep up with the EMIs till you completely pay off the loan; only then does the house truly become yours.
Applying for a Home Loan
Let’s say you’ve clearly analysed your financial situation, and arrived at a budget for the house. You’ve probably searched for independent houses or apartments in the localities you like, and narrowed down your choices. Now, you are wondering how to apply Home Loan.
You can compare Home Loan offers from various banks and NBFCs on financial websites. Pick a few of the offers. Use the Home Loan EMI calculator and other tools to find out which offer suits you best. Then, go to that bank or Non-Banking Financial Company‘s website and apply for the Home Loan online. You’ll have to fill in an application form, and furnish basic documents like ID proof, address proof, age proof, income proof, and documents relating to the property you intend to buy.
Once you’ve done this, the bank reviews all the papers you submitted, verifies the information, reviews your creditworthiness based on your credit history, and looks at your savings and investments. Then, if the bank thinks you fulfil all the Home Loan eligibility criteria, it issues you a sanction letter.
The Sanction Letter
The Home Loan sanction letter is not a formal agreement between you and the bank. It does not guarantee that you will get the loan; you still have some way to go before that happens. Instead, this letter is an indication that the bank considers you eligible for a loan, that you have fulfilled most of their conditions for getting a Home Loan. It also specifies the loan amount, and the loan terms you are likely to get.
This letter is useful, because it can be used as leverage during negotiations with the seller or developer. If you have a sanction letter, it indicates you are more than halfway through the Home Loan approval process.
This can help you get better purchase terms, and put you on top of the potential buyers list for a property that you really like. After all, the seller can safely rely on you to get access to the funds to buy the house quickly.
The Home Loan sanction letter is also important in other way, because of the information it contains.
What’s in the Home Loan Sanction Letter?
The sanction letter contains certain vital information that you will need to plan for funds to buy the house, and plan how you will repay the loan:
- The letter contains one vital piece of information—the amount you are likely to get as loan. If this amount is less than what you applied for, you’ll need to look for ways to make up the difference
- It contains information about the type of interest on your home loan—whether fixed or floating
- It specifies the actual interest rate that you will have to pay
- It specifies the EMI and pre-EMI amounts you will have to pay
- It specifies the loan tenure
- It mentions the period of validity of the sanction letter
The last point is very important. The sanction letter is generally valid for 6 months. Remember, you still have to finalize terms with the developer or seller, get access to all the documents still required by the bank, and then submit them. The bank has to verify and process all this information. If the time taken for all this exceeds the time of validity of the letter, you will have to start the loan application process all over again.
Apart from this, the Home Loan sanction letter contains detailed information about the loan terms and conditions you will have to go through very carefully. The tenure, loan amount, interest rate offered and the EMI, will all help you plan your repayment well. The letter also gives you the assurance that you are very near the final approval of the loan and you can then focus on raising the necessary funds for the down payment that you need to make.
You can also devote time to other tasks like thoroughly inspecting the house you are buying and finalizing terms with the seller.