Complete Guide to availing a home loan in India

Dec 1, 2021

Want to buy your dream house? Are you considering applying for a home loan? Not aware of the process to avail of a home loan? Well, you have come to the right place. In this blog, we will cover all the steps involved in getting a home loan in India Lakhs of Indians, choose to take home loans to buy their desired home. However, many applicants are rejected, while few end up insolvent.

What is a home loan?

Home loans are a sum of money lent to the applicant for the sole purpose of buying a property and constructing a house. The loans are sanctioned in exchange for monthly installment repayments along with interest. The property purchased through the home loan stays collateral in the form of a mortgage with the bank, but the ownership stays with the person who buys the property.

Steps involved in availing of a home loan 1. Application Process

The home loan process starts with an application, which needs to be filled out and submitted to the bank or the finance corporation, along with a few documents. The submitted application and documents further undergo verification. Documents usually include:

Identity, address, age proof. Example: Aadhar Card
Educational Certificate
Job details
Bank Passbook
Proof of income. Example: Income Certificate
Pan card
Prospective Property details

2. Loan Processing Fee Payment

There is a fee charged for the processing of the loan. The financial institution usually charges around 0.5 to 2% of the total loan amount. The total chargeable amount would include Goods and Service Tax (GST) of 18% on the initial processing fees. This whole amount charged would stay nonrefundable.

Few banks don’t charge a processing fee to attract more applicants. Negotiations regarding the processing fees may enable the applicant to avail of some financial benefits, however, most banks don’t opt on reducing or waving off the processing fees.

3. Examination of Application

In this stage, appropriate officers would examine the application and documents previously submitted. This examination follows the payment of the loan-processing fee. The examining officers would later assess the loan amount eligible for the applicant based on his creditworthiness.

The applicant would have to meet the bank officials within 2 to 3 days after the submission of the application and documents for assessment of repaying ability. After personal interaction, the bank officers would pay a visit to the applicant’s office and residence to scrutinize the information previously submitted through the application. Further, they would also examine the credit history of the applicant through their CIBIL score.

4. Assessment of repaying ability

This is the most important stage in the home loan process. Bank may accept the application or reject it based on repaying ability of the applicant or previous credit history. Repayment of installments includes the principal amount along with interest.

Incase the bank disburses the loan amount based on a condition; the condition has to be satisfied to avail the loan amount.

5. Offer Letter

After the bank decides to sanction the loan to the applicant, it drafts an offer letter, which contains the following details:

Amount Sanctioned as home loan
Rate of interest
Fixed or floating rate of interest
Loan period
Payment Mode
Pan card
Terms and conditions applicable

The applicant should submit an acceptance copy of the offer letter by signing it. This copy serves as proof of loan sanctioning and acceptance by the borrower. The applicant must pay any administration charge due at this stage.

6. Asset Verification

Before lending out the amount, the bank verifies the property upon which the loan is requested. The borrower would have to submit original documents relating to the property, namely a title deed, no objection certificate, and any other document requested by the bank.

The authenticity of the title deed and no objection certificate would be checked to ascertain any disputes relating to the property. Property valuators would be assigned to ascertain the value of the property based on certain standards, on which the loan amount would be decided. Bank retains the documents until the repayment of loan since the property stays collateral to the loan amount sanctioned.

7. Sanction of home loan

After verification of the application, ascertaining the credit worthiness, and assessment of the eligible amount backed by all documents, the registration for availing home loan begins. Legal documents should be prepared in a format approved by the bank on stamp paper. Postdated cheques need to be submitted to the bank. The applicant can now sign the home loan agreement.

After the legal requirements are fulfilled, the bank starts the loan disbursal process. Depending on the type of disbursal (lump sum or stages), the bank will dispense the loan amount. It generally takes 2-4 weeks for the home loan to be disbursed.

How is your creditworthiness determined?

Creditworthiness depends on the following aspects:

Age

Banks prefer lending loans to applicants who pay their last EMI amount before 60. Applicants nearing the senior age group would be sanctioned a low tenure loan compared to younger applicants. However, long-term loans may have extra charges and conditions associated with them.

Income

Banks usually consider nonperformance-based pay or base pay as salary. They don’t consider bonuses or allowances as part of your salary. Hence having a large percentage of performance-based salary would reduce the loan amount eligible.

Financial Obligations

The total financial obligations of the applicant should not exceed 55 to 60 percent of his/her monthly income. Obligations may include EMI’s of other loans.

Cash inflow and outflow

Banks assume that 40 percent of the monthly income can be directed towards the repayment of loans. Analysis of the salary earned and expected expenditure of the applicant is done to ascertain the amount of EMI that can be smoothly paid

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