Home Loan

Investing in your dream home is one of the most crucial decisions of your life. This is precisely why your research should be thorough before you get into a long-term repayment commitment with a lender. Here is a quick step-by-step guide on the process of availing of a home loan – from the point of application to the point of disbursal of the amount.

Step 1: Finalise the property
There are two types of property that you can buy- ready-to-move and underconstruction. In both cases, loan agreement and loan disbursal stage, which are the final step, varies slightly. We’ll talk about it when we come to it. In the first stage, if you are not buying the property with 100% cash, you will require a home loan. So, finalise your property and get set for loan shopping.

Step 2: Filling up loan application
Once you have finalised the property, homebuyers need to fill a loan application. Homebuyers should enquire about various offers, home loan interest rates, documents required at this stage. At this stage, you can also negotiate the processing fee with the bank. You can start a loan inquiry. For this, you should start comparing interest rates online. This is the easiest way to understand the bank that will provide you the best and lowest home loan interest rate. You can also find all the details on the dedicated home loan page on Housing.com. Post this, you can directly generate an inquiry with the bank either by approaching the nearest bank branch or using the bank’s website. During the inquiry, you can negotiate for the best available rates. Many homebuyers do not know that the home loan interest rate is negotiable. On the basis of your good credit score and income, banks can give you a good interest rate as well. So be aware and ask for it at this stage before it's too late. At this stage, you should also know that an additional expenditure also comes in the form of processing fee which can be anywhere up to 1% of your loan amount. This is also negotiable and most banks will agree for anything between 0.25-0.5% of the loan amount as processing fee. You will also have to pay a fee for due diligence that the bank will do for you. It may happen that banks lower the processing fee but ask you for a higher charge for due diligence. It is important that you clarify this early on, to avoid spending more than what your budget permits. The next step is related to documents. Salaried and self-employed borrowers need to provide separate documents to the bank so that the bank can assess the financial health of the homebuyer. You can refer to the list below. Some of the common documents included are as follows. You can keep these ready whenever you proceed to apply for a home loan. Remember that you should pay the processing fee only to the bank that you feel is giving the best interest rate.

List of documents common for both salaried and self-employed individuals:

• Loan Application form (completely filled)
• Passport size photographs
• Identity Proof Documents Such as PAN Card, Driving License, Passport, Voter ID Card, etc.
• Residence Proof such as electricity, water or telephone bill, ration card or any other government-issued ID proof that contains your residential address.
• Copy of bank account statement/passbook entries for the past 6 months
• Signature Identification proof from current bankers
• Statement of Personal Assets and Liabilities

List of documents that are different for salaried and self-employed individuals. This may change from time to time or depending on the bank.

Step 3: Bank’s due diligence
Banks will not give you a home loan without assessing your financial background, your repaying capacity, the legality of the property, and other details based on their field investigation. This is the next step where the bank does due diligence.Your bank statements, savings, transactions, investments, business activity, credit and repayments, bank balance, cheque bounces - all these are studied by the bank. Now suppose that your cheques have bounced or been returned in the past- this can lead to ineligibility to get a home loan. The bank also studies your liabilities and loans. After this, the bank sees your net income and credit score. A score of 750 and above indicates a healthy credit score and banks are usually willing to give you a better (lower) interest rate. Not just financial health, banks also check your personal details through a field investigation where they check your residential address and contact details. A bank representative may visit your home to confirm such details. Do note that the nature and sector of your job also impact and determines whether you are eligible for a home loan. For example, sectors where there is a risk of job loss or instability, high attrition, are often not considered good. The field representative usually determines this. The property that you are going to buy is also checked. The property’s condition, quality, encroachments, valuation- all these aspects are checked by the bank. If the property is under construction, then the construction progress, its quality, building plan, and layout are also carefully examined. This is the technical due-diligence stage. Next is the legal due diligence stage. Ownership and encumbrance related documents are checked. In the case of unestablished ownership or a third party’s claim on the property, banks do not approve of the home loan. This is also one of the reasons why taking a home loan is beneficial in many ways. Banks check the entire title deed, possession certificate, sale agreement, etc. It will help you make an informed decision. Even in the case of an under-construction property, banks study and examine land ownership, allotment letters, builder-buyer agreement, project approval documents, etc.

Step 4: Estimating your creditworthiness and loan eligibility
Once banks establish that the property you are interested in is sound and free of legal hassles, it does a deep-dive into your creditworthiness. For this, banks study your repayment history and check for defaults. You can even get a higher loan amount in case you have been able to maintain a good credit score, throughout. At this stage, banks assess your EMI repayment capacity based on your income and liabilities, if any. For example, Amit has an income of Rs 50,000 per month and a car loan liability of Rs 10,000 per month. The total disposable income of Amit is Rs 40,000 per month. Banks consider it good if your EMI is not more than 50% of your disposable income. In this case, therefore, Amit can spend Rs 20,000 per maximum as EMI, and therefore, the home loan sanctioned may roughly be between Rs 20-25 lakh. It depends on different banks, how they assess and calculate your repayment capacity. In short, banks check the Loan to Value ratio and do not sanction more than 80-90 %. It also checks your income, age, company, nature of work, etc to calculate your home loan eligibility.

Step 5: Accepting the offer letter
After various checks, the bank sends you an offer letter with the final loan amount mentioned in it. If you sign, it is considered as accepted formally. You can then sign the loan agreement. After this, the bank hands over the DD to the seller and you can take possession of the property. The offer letter clearly mentions the sanctioned loan amount, rate of interest- whether fixed or variable. Fixed interest rates are higher than variable but even fixed is not altogether a fixed rate, these could be floating rates as well and could be fixed for a certain period. It totally depends on you whether you choose, fixed and floating rate or variable. The offer letter also mentions the tenure, number of EMIs to be paid, mode of repayment whether post-dated cheques or electronic clearing; schemes availed such as PMAY or bank offers, validity, terms, and conditions, etc. You should sign the offer letter only if you are satisfied with the offer. Do remember to check the sanctioned amount. Pro Tip: If you can arrange some finances from friends and family, you can also ask the bank to reduce the loan amount sanctioned. The next step is the loan agreement. All borrowers need to sign it in case of a joint home loan. If you have planned to opt for post-dated cheques as repayment option, banks collect cheques equivalent to the loan amount at this stage, for security. In the case of an under-construction property, the process is slightly different. A tripartite agreement is signed at this stage between the bank, borrower, and builder. The loan disbursement stage for an under-construction property is different and depends on the progress of construction. Accordingly, the bank pays the builder directly and all the original documents are collected from you by the bank. The sale deed is signed in the case of a ready-to-move property. The day it is signed, the DD is directly handed over to the seller. Prior to this, the bank will check whether you have made any down payment and whether the sale deed has been registered at the sub-registrar’s office. Even in ready-to-move property, banks keep all the original property papers. Do keep photocopies of all the documents that you have submitted in the bank.