Buying a home is one of the major decisions a person has to take during her/his life. It is rare to find someone who pays the entire cost of home at one go. A home loan is an essential part of any home buying endeavour. Taking a home loan is a long journey, which involves many stages. The key to getting your home loan in a smooth way is being familiar with the entire home loan process.
The process
The process of getting a home loan starts with a formal application for the loan. The application form requires certain basic information about the borrower. This will include your personal, residential, income, employment, educational details, details about the property, estimated costs and current means of financing the property. Though these requirements may vary from bank to bank there are certain things documents that every bank will ask.
The application form must be supported with valid documents to substantiate the facts. Generally the banks will ask you to submit following documents.
- Income proof
- Age proof
- Identity proof
- Address proof
- Employment details
- Proof of educational qualifications
- Details about the property if finalised
- Bank statements
The purpose of the entire exercise is to ascertain the suitability of a applicant for a home loan. The income documents and bank statements provide vital clues to the bank regarding your financial health.
Processing fees
An important thing to note about home loans is the processing fee. Banks charge a processing fee for every home loan application. This fees is non-refundable. The processing fees varies from bank to bank and is generally between 0.25 per cent to 0.5 per cent of the loan amount. This fees is used by the bank to start and maintain the home loan process including completing various formalities during the entire period.
Evaluation and verification of home loan applicant
After applying successfully for the home loan and submitting the processing fees, the bank evaluates your application, decides in principal about your home loan and a personal meeting with the bank officials. This decision for personal interaction can be taken within 2-3 days of submitting a complete application. The purpose of this personal interaction is to know more about the borrower and her/his repayment capacity.
Satisfied by your application and personal interaction, the bank proceeds to verify all the facts that you mentioned in your application for home loan. A field investigation process is initiated -- to confirm and validate everything stated in the application form. Qualified representatives are sent by the bank to your office and place of residence to ascertain facts. The references provided in the application are cross-checked and verified.
Verification of repayment capacity
Once the field investigations are over, the bank now goes ahead to verify your repayment capacity. This is the most vital part of any home loan process. If the bank finds that you'll not be able to repay the money back with interest on time, it will simply deny you any home loan offer.
On the other hand if the bank finds that all's well and is convinced about your repayment capacity, it sanctions your home loan. Based on how well the bank is satisfied by your financial conditions and repayment capacity the bank can issue a conditional or unconditional sanction. If the sanction is conditional, you'll have to fulfill the conditions imposed before the loan is disbursed.
Offer letter for home loan
- The bank then prepares an offer letter which contains the following detail:
- The amount of home loan sanctioned
- The interest rate applicable on your home loan
- Whether the interest rate is fixed or floating
- Your home loan tenure
- The mode of repayment of the home loan
- If any special scheme apply to the home loan, then its details
- The terms and conditions associated with the home loan
If you find the offer attractive and agree with all the facts mentioned in the offer letter, you will have to provide an acceptance copy to the bank. This is generally a duplicate of the offer letter signed by you, provided to the bank for its records. If the bank charges any administrative fee, it will have to be submitted at this stage.
Verification of the property
Strange but true, even after all this long process, the home loan is still not yours. Now the bank will verify the property in question. The home loan is a secured loan with the property being used as the security or collateral. So, to get the home loan you must submit the original documents of the property to the bank. The title deeds, no-objection certificates and other documents required by the bank are to be submitted in original and the bank keeps them safely until you repay the entire loan amount. After taking the papers, bank conducts a legal check so as to verify that the property has a clear title and the home loan is being disbursed to the right person. Banks don't lend for disputed properties and for titles where ownership cannot be easily enforced.
Along with the legal check, banks also sends experts to the location of your property to conduct a technical valuation. If the property is under construction, the banks verify the stage of construction, quality of construction, progress of construction, locality etc. and evaluate the property on established parameters. In case where the property is ready or is being resold the bank verifies the ownership, maintenance, age of property, quality of construction, locality and required legal clearances. The banks have qualified valuators, which assess the value of property on various parameters and decide on the amount of loan.
The sole purpose of all this exercise is to ensure that the property has a clear title, is technically sound and meets the valuation standards of the bank.
The disbursal of home loan
Once the formalities are completed and the bank is satisfied with the legal, technical and financial valuation of the property, the registration process for the home loan begins. The legal documents are to be prepared on stamp papers of required denominations in a format approved by the bank's lawyer. The home loan agreement is then signed and you need to submit post dated cheques for the agreed term after the disbursal process begins. Depending on the home loan purpose, and the agreed type of disbursal (lump sum or in stages), banks disburse the home loan amount.
Photograph: Rediff Archives
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