Over the years, home loan procedure has gone through tremendous change with increasing competition among public and private Banks and Housing Finance Corporations. Many lenders may offer you freebies and entice you to take home loan from them. However, you should be aware of theirs tactics. You will be better prepared to handle your home loan if you know the entire procedure beforehand. There are several steps in the Home Loan Procedure in India. In this guide, we will take you through the entire process of home loan step-by-step.
Home Loan Procedure
Compare Interest Rates
The very first step in the home loan procedure is to compare interest rates online. BankBazaar is a good resource to compare home loan interest rates. Needless to say that you should go with the lowest interest rate.
Tip – Some Banks may offer a much lower interest rate for initial 1-3 years and then interest rate will increase substantially. Don’t fall into such traps. Always compare long term interest rates (15-20 years) and then go with the lowest rate.
Submit Home Loan Application to Bank
Once, you have selected the Bank offering lowest interest rate, submit a home loan application to the Bank. Along with loan application, you will have to submit processing fee and mandatory documents like address proof, identity proof, age proof, income details, bank statements etc. For more details on documents required by salaried, self-employed and businessmen, check out Documents Required for Home Loan.
Application Evaluation and Personal Discussion with Bank
After you submit your application, processing fee and necessary documents, the Bank will evaluate your application and call you for a discussion at the bank. You should carry all original documents for verification in case it is required. Based on your application, you will be told about your home loan eligibility, interest rate offered and EMI that you will have to pay.
Field Investigation by Bank
After your home loan application is evaluated, the Bank will verify your residence and office addresses and validate all documents submitted by you.
Credit Appraisal by Bank and Loan Sanction
After field investigation, the Bank will perform a credit appraisal to check your credit history and establish your repayment capacity based on your income, age, qualifications, experience, nature of business etc. One of the most important factors in determining your loan approval is the CIBIL Score. 90% of all home loans that get approved have a CIBIL score of more than 700. You may not know that your home loan application can get rejected if you have defaulted on a credit card payment 3 years ago. Therefore, it is worth checking your CIBIL score before applying for home loan so that you can take corrective measure to improve your credit rating. See – How to check CIBIL Score.
The Bank can reject your application at this stage if there is any discrepancy found in your application or your credit history. If you satisfy all guidelines of the Bank, the bank will sanction your loan.
Once, your loan is sanctioned, you will receive home loan offer letter from bank stating loan amount, interest rate (fixed or variable), loan period, EMI, mode of repayment and other terms and conditions. This offer letter is not the final loan agreement but an in-principle approval from Bank.
If you agree with all terms offered by the Bank, you have to sign on the duplicate copy of offer letter and submit to the Bank.
Legal Check of Documents
Once you accept the loan offer, you will have to submit all legal documents related to title of the property and other property documents to the Bank for verification. In case, you are availing loan for an under construction property, you will have to submit all original demand letters from builder to the Bank. You will also have to submit proof of down payment to the bank. Bank will retain all legal documents of property until the entire repayment of loan.
Title Inspection & Valuation Check
The Bank will do title verification of the property and conduct independent valuation of the property. Generally, under construction properties are pre-approved by Banks. For a ready to move in property, Bank representative will visit the site and conduct independent valuation of property.
Home Loan Agreement
Once Bank completes legal check, title inspection and valuation checks, you will be called to sign on the final home loan agreement.
Loan Disbursement & Sale Deed Registration
After signing the loan agreement, loan amount will be disbursed as per terms and conditions of your agreement.
For a ready-to-move in property, the Bank representative will hand over the loan amount draft directly to the seller on the date of sale deed registration and collect the original Sale Deed with him. You can take copy of Sale Deed for your records.
In case of an under construction property, the bank will disburse loan amounts as per construction linked payment plan. Once Sale Deed Registration is done, you will be given copy of Registered Sale Deed and original copy of Sale Deed will be handed over to the Bank.
You can collect your original Sale Deed from the Bank after the loan amount is paid in full.
Now that you know the complete home loan procedure, you will be better prepared to apply for a home loan.
Over to You
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