Tips for Smoother Home Loan Sanctioning and Disbursement Process

Property prices have been consistently increasing across several parts of the country. Inflation is high, and the economy is going through a rough patch.

Nonetheless, many Indians' intentions and dreams of owning their dream home have not been dampened.

Fortunately, Indian residents can now depend on third-party financing to become homeowners. This is where a home loan enters the picture.

A home loan application is divided into three broad stages. This includes the formal application of the loan, the process of home loan sanctioning, and finally disbursement of the loan amount.

What is Home Loan Sanctioning?

Once you apply for your home loan with your preferred lending partner and submit all the relevant documents, there are dedicated departments that will review the information. The lender will check your application form, which will capture key information such as your age, profession, address, financial liabilities and repayment history.

Some documentation that you may require are: PAN, address, age, education, employment, income/ business, banking as well as property details. The lender will also run a check on your credit score to make sure that you are a credit worthy candidate for a home loan. The requirements may differ from one lender to another. Lender’s representatives may also contact you for a face-to-face discussion in case they have any doubts related to your documentation.

If the lender is satisfied with the application and ascertains that extending a home loan to you comes with minimal risk, you will receive a notification that your home loan has been sanctioned. The sanction letter will comprise of your loan amount, rate of interest, repayment tenure, and other details.

This process is commonly referred to as the home loan sanction process.

Your lending partner will send you a confirmation letter detailing the terms and conditions of your home loan.

The borrower needs to sign an agreement, following which the lender proceeds with the home loan disbursement.

How Much Loan Can Be Sanctioned?

As per guidelines issued by the Reserve Bank of India, banks and non-banking financial institutions cannot fund the entire amount required to purchase a property from the prospective borrower. Only a certain percentage of the property’s market value can be extended to the borrower in the form of a home loan.

The percentage again varies at the lending partner stage. The general range can be anywhere between 60% to 90% depending on which lending partner you choose as well as your eligibility.

Therefore, not knowing how much home loan you may be sanctioned is a valid concern to have.

A number of key factors are considered by the lender in order to decide on the maximum home loan amount that can be approved. This varies on a case-by-case basis.

However, the general thumb rule that can help you arrive at a rough estimate is to multiply 60 times your monthly net income or the income in hand if you are a salaried individual.

Self-employed people can also get their home loan sanctioned by submitting their income documents to their lending partner. The lender will assess the profile of the self-employed applicant to decide whether the candidate is creditworthy enough to be sanctioned for a home loan.

If you are looking to get a high home loan amount approved, you can consider the option of applying for a joint home loan with another earning member in the family.

Must Read: Important RBI Guidelines for Home Loan

What is the Home Loan Disbursement Process?

You may nurse the ambition of becoming a proud homeowner but that only becomes a reality with the help of a home loan for many Indians. Getting a home loan is a time consuming process.

It does not end simply by filling out a form and submitting it to your preferred lending partner. You need to support your application with a range of documents. This triggers the verification and vetting process from the lender’s end.

The lender will check your application form which will capture key information such as your age, profession, address, financial liabilities and repayment history. The lender will also run a check on your credit score to make sure that you are a credit worthy candidate for a home loan.

If the lender is satisfied with all the parameters, then a sanction letter is sent to the applicant confirming that the home loan has been approved. Once you sign the agreement, this is followed by the home loan disbursement process.

Here is how the home loan amount is disbursed

Your lender will decide on the process of your home loan disbursement after the fulfilment of the above stages. This generally involves a simple transfer of the approved loan amount to the bank account that has been registered with the lender at the time of the home loan application. The funds will be disbursed into your account as per the agreed upon schedule made. The lender can make direct payment to the property developer or decide to credit the same to your account.

A non-refundable processing fee will need to be paid, which will mark the commencement of your home loan process.

That said, there may be stages to the home loan disbursement depending on the conditions of your home loan application.

Many real estate developers accept a monthly instalment system of disbursement whereas some will opt for a tier based structure. In the tier based structure, you will be required to disburse a bulk amount to the property developer at periodic intervals.

Differences Between Loan Sanction and Disbursement

The home loan sanctioning process involves conforming to the applicant that the home loan applied for has been approved by the lender for a specific amount at a predefined rate of interest with a specific repayment period. This does not imply that the actual funds have been transferred or disbursed to the borrower’s bank account.

The home loan disbursement process is when the actual funds hit the bank account of the borrower.

This is the only point of differentiation between loan sanction and disbursement.

Final Thoughts

Both the home loan sanctioning and disbursement process are critical stages of the overall home loan application. Make sure you choose a lender that helps you simplify your loan process and doesn’t require you to pay multiple visits to their branch. SMFG Grihashakti offers an online application process that helps you apply for a Home Loan from the comfort of your home at competitive interest rates. Apply with SMFG Grihashakti online and take a step towards being a homeowner today.

Must Read: Step by Step Guide to Home Loan Application Process