Home loan procedure in detail

Anyone who is willing to take a home loan must be wondering how long and complex the procedure would be. You will be glad to know that to own your dream house is not a long difficult task anymore. With the rising number of banks and NBFCs, each one has taken certain steps to survive in these competitive market. These steps have served as a boon to us customers because they have simplified the procedure. Apart from that, the lending institutions also tip-toe with the applicants to get everything done for them. There is hardly any bank or NBFC that do not cooperate with their clients or guide them throughout the loan procedure.

Still, if you are willing to do your homework before contacting any financing institution, then we are here to help you. The standard procedure is the same across all banks and NBFCs. Following are the steps involved in home loan procedure.

  1. Choosing the bank or NBFC

You have to choose the right lending institution for you. You have to be very careful in this first and foremost step. It is so because how you are going to financially spend your next many years depends on that. The rate of interest varies from bank-to-bank. A lower rate of interest means lower EMI which in turn means less burden on your income. Letting loan installments take a big chunk out of your income every month when it could have been less, is not wise.

So, how to choose the right bank? You already have all the details of all the banks and NBFCs in BankHelpline. You can compare and choose the best suitable option for you. In case you need more help, then keep the following points in mind before choosing the right bank.

  • The bank/NBFC you choose must have a branch in your city. The lending institutions whether it is a bank or Non-banking Finance Company lend only to the people who are residing within a specific range from the branch. Therefore, if you have a preference for a particular bank/NBFC, it is of no use in case there is no branch of the same in your area.
  • The rate of interest is another most important factor to keep in mind. Choose the one among the banks/NBFCs which charges the least.
  • The processing fee may not be that important factor for many but it can be for some. See if your bank is charging too much processing fee. If the lending institution is offering low-interest rate, then high processing fee should not be an issue as it is only a one-time payment.  Negotiate with the bank if it seems unaffordable to you.
  • Pre-payment charge is also a factor which one should keep in mind. There might be a situation in future when you want to and also capable to get rid of your liabilities by making pre-payment against your home loan. At that time, pre-payment charge will come as an extra and unnecessary burden to you. Therefore, do take into account the pre-payment charges of all the banks/NBFCs. Thankfully, many banks have removed the prepayment charges from their system.

2. Loan application form

Get the loan application and fill it. Fortunately, we are living in a time when you have the option to fill online loan application form. You do not have to wince over the mistakes you might make while filling the form because a simple pressing of delete button will do. No wastage of paper, no worries mishandling the form and no need to physically submit your application because a simple pressing of submit button will do the same.

In case, the bank or the NBFC which you have chosen does not provide online loan application facility, then keep the following points in mind before filling the physical form:

  • Read carefully the instructions before filling the form. Many a time, there is a specification of ink color which you are supposed to use for filling the form. Also be careful about where you are supposed to use capital letters for putting certain details in the form.
  • Keep the form safely as you keep any other important document.
  • Do not miss out on any detail. Always fill the form in your free time so that you can do it peacefully without making any mistakes.
  • Submit the form to your bank as soon as you have filled it. Delaying often leads to mishandling or losing the form.

The details which are asked in the application form are:

  1. Applicant’s personal details; name, address, and photograph.
  2. Education qualification of the applicant.
  3. Income details of the applicant.
  4. Employment or business details of the applicant.
  5. Details about the property for which the loan is to be taken.
  6. The estimated cost of the property

3. Documentation

There are certain documents which are to be provided to the bank to validate those details provided on the application.

Employed Self-employed
Photo ID and age proof  PAN card, Adhaar card, Driving license, Voter ID card  PAN card, Adhaar card, Driving license, Voter ID card
Address proof Adhaar card, Driving license, Voter ID card Adhaar card, Driving license, Voter ID card
Income proof Last 3 months’ salary slip, Form 16 or Income tax return Last 3 years income tax return with the computation of income.
Income track record Last 6 months’ bank statement Last 6 months’ bank statement

4. Processing fee

A cheque of the amount specified by the bank has to be paid as a processing fee. The fee is to process your loan application file. As mentioned earlier, this fee varies from bank-to-bank.

5. Document Verification

As soon as the application form along with the documents is submitted to the bank, the ball gets into its court. Bank verifies all the documents by:

  • Visiting the address mentioned in the document.
  • Visiting the place of work.
  • Checking the bank transactions.
  • Visiting the property site which the applicant is meant to buy.

6. Loan approval

The loan is approved as soon as the bank is convinced about the following things through documents and verification of the same,

  • The background of the applicant- the applicant should not have any criminal records or loan default record. If the bank finds any, the loan application will be immediately rejected.
  • The income steadiness- The bank will check how steady the income of the applicant is. Because this is what on which the repayment of loan depends.
  • Employer’s background check- For the applicants who are salaried, the background of their employer also matters. Because this is what on which their job depends.
  • Education qualification- The banks prefer the educated individual to lend money to. It is so because an educated individual cooperates more and an educated person is more employable. Hence, an educated person has the capability to repay the loan even when the circumstances get unfavorable.

7. Offer letter

The bank drafts the final offer letter of the loan for the applicant to sign. The offer letter consists of the following things:

  • Sanctioned amount- The offer letter mentions the sanctioned amount. It may be less than the applicant’s expectation. But the bank approves the amount on the basis of the applicant’s profile.
  • The rate of Interest- The offer letter also specifies the loan interest rate. It also mentions whether it will be a fixed interest rate or floating rate of interest.
  • Processing fee- The processing fee which the bank takes from the applicant is also mentioned in the offer letter.
  • Loan tenure- The tenure for which the loan repayment will go on is also mentioned the offer letter.
  • EMI- The offer letter also mentions the equated monthly installment which is calculated on the basis of sanctioned amount, the rate of interest and the tenure of the loan.
  • Mode of repayment- The loan repayment mode is also mentioned in the offer letter. It can be through post-dated cheques or ECS mode.
  • The terms and conditions- The offer letter mentions all the terms and conditions related to the home loan.

The loan applicant has to thoroughly read the offer letter before signing it. If possible he or she can negotiate on certain points with the bank. At this point, the applicant can also reject to sign if he/she does not find the offer suitable for them.

After the applicant signs the offer letter, the bank keeps the original and gives a copy of it to the applicant.

8. Legal check

A proper legal check of the property which the applicant is willing to buy is necessary. If the applicant wishes he or she can hire the lawyer as per their wish. Or else, the banks have their lawyers to do the same.

Why legal check is important? Many a time the seller of the property hides certain facts about the property just to get the sale done. The property may already be in a dispute with some other party. Therefore, a legal check is necessary to find out if the property is free from any such dissension.

9. Disbursement

The final stage of the loan is disbursement. It is when the bank issues the cheque of the loan amount favoring the seller or the builder of the property.