home loan application process work in India

Here’s a step-by-step guide to home loan in India

Buying a home is one of the most important decisions in one’s life. With affordable home loans arriving on the scene, buying a home has become a reality for many. As purchasing a home requires a lot of investment, taking a home loan to finance part of the fund requirement is very common in India and across the world.

Before home loans were in place, people used to save for years and rely on unrecognized lenders to take some loans at the time of requirement. However, with the changing consumer landscape and tighter oversight and regulations, a lot of things have changed for the better in the industry.

You are now able to take home loans at one of the most affordable rates in the industry with a lot of transparency and reliability. But to make the right choice when it comes to taking a home loan, it is important to understand how do home loans work in India.

This is your guide about home loans, what they are, how do they work, what should be kept in mind while taking a home loan and how to repay the home loan in time without any bad experience. Here is all about home loans:

What are home loans?

A home loan is money that is borrowed by an individual from various banks or non-banking financial companies (NBFC) for purchasing a property.

How does a home loan work in India?

The home loan amount borrowed by the individual is paid to the owner or builder directly by the bank or NBFC. The borrower is expected to pay back the loan amount in the form of monthly EMI over the selected tenure along with interest on top of the principal.

For instance, a loan of Rs. 25 lakh taken for tenure of 10 years at an interest of 9.55% per annum will attract an EMI of Rs. 32,418. The calculation also shows that the loan will attract an interest of Rs. 14 lakh over and above the principal of Rs. 25 lakh which takes the total outgo at Rs. 29 lakh over the 10-year tenure.

Here are some important aspects that should be noted for home loans:

  • 1. The property on which the loan is being given is taken as a security by the lending company.
  • 2. The property can be commercial or residential.
  • 3. In case the borrower is not able to pay the dues, the lender has the legal right to recover the remaining amount by auctioning the property in question.

Step-by-step guide to home loan application process

Here is a step-by-step guide to the home loan application process that can help you get started on your journey:

1. Submit the application
This is the first step in the home loan application process. Under this step, you are expected to submit the loan application with your basic information. Information required at this step includes:

  • Personal details like name, contact details, residential address, etc.
  • Income details like annual income
  • Education details
  • Business/Employment details
  • Property details like residential/commercialaddress, etc.
  • The estimated cost of the property in question
  • Present means of financing the property

Information required at this step may vary from lender to lender. In addition to the information submitted as part of the application process, you need to attach documents to verify the details submitted as part of the application. The home loan documents required at this stage include the following:

  • Identity proof
  • Income proof
  • Age proof
  • Address proof
  • Employment proof
  • Education proof
  • Property details

2. Pay the processing fee
Once the application is submitted, it is important to pay the processing fee for the loan. Again, the processing fee may vary from lender to lender. Typically, the processing fee for a home loan varies from 0.25% to 1% of the loan amount.

The processing fee is the amount collected by the lender to maintain the loan account of the customer. This amount may also include the commission to be paid to the agent. You can always negotiate with the lender to get a better deal on the processing fee.

Though banks and NBFCs have a set structure for calculating the processing fee, there is no harm in trying your luck with a request to reduce the processing fee. In case the lender is offering no processing fee, do compare the rate of interest, duties, and other charges that are involved which will make the loan cost you more.

3. Discuss with the lender
This is the stage where the documents submitted have been verified by the bank and a formal discussion is held between the lender and the customer. It usually takes 1-2 working days or lesser if the submitted paperwork is in order.

There are some lenders which require you to pay a visit to the branch to discuss the loan, term, and other details. Some lenders are more comfortable discussing these details in person and collecting additional details about the applicant. However, there are modern lenders like Poonawalla Housing Finance which do not need you to visit the branch for anything.

The online process followed by end-to-end doorstep service allows for a comfortable and hassle-free experience for our customers. Know more about Poonawalla Housing Finance Home loans.

4. Wait for verification of documents
It is important to understand that several customers apply for a home loan daily. To make processing of your application faster, it is important to submit paperwork in order. At this stage, the lender verifies the details submitted by the applicant.

Typically, the following documents are verified by the lender:

  • Residential address
  • Employment details
  • Employer credentials
  • Residence contact number
  • Workplace contact number

These details are verified to ensure that all the contact numbers and details submitted by the applicant are in order.

5. Get approval
This is the most important part of the home loan process. It is the stage at which the lender accepts or rejects your loan application. This is called the approval or sanction of the loan application. To approve the loan, the lender performs a thorough check of the application on the following parameters:

  • Age andqualification of the applicant
  • Employment details of the applicant/Business details of the applicant
  • Income details of the applicant
  • Ability to repay the loan with the set interest

Based on the analysis of the application on the parameters mentioned above, the lender confirms the maximum amount that it can grant. There are some cases under which the lender puts some conditions which are to be fulfilled by the applicant before the loan can be disbursed.

6. Receive the sanction letter
The lender is expected to issue a sanction letter after processing all the documents that have been submitted by the applicant.

The lender usually sends a certified offer letter which includes the following details:

  • The maximum loan amount that can be sanctioned by the lender
  • The interest rate on which loan amount is being sanctioned
  • Nature of interest rate – fixed or variable
  • Tenure for which loan is being granted
  • Monthly EMI that is to be repaid by the applicant to the lender
  • Other terms, conditions, and policies of the loan

Always remember to check the details mentioned in this letter properly. You can always match them with the details initially agreed between you and the lender. You can negotiate the interest rate with the lender if required.

If all is good, you are expected to sign a duplicate copy of the offer letter as your acceptance and submit it to the lender for records.

7. Submit your property documents
After the offer letter has been accepted by the lender, it is now time for the lender to focus on the property in question. Even if the property is not yet finalized by the applicant, the lender may give some time for the selection of the property.

Once the property has been selected, ensure that the following details are part of the property documents for easy approval:

  • Name of the seller
  • Address of the seller
  • Name of the property
  • Address of the property
  • Chain of documents. This is required where the seller is not the first owner of the property
  • No objection certificate from the primary legal owner
  • NOC from the statutory development board representative & cooperative housing society
  • In case the land is on a lease, NOC from the lessor

The original property papers remain in the custody of the lender till the time the loan is repaid in full by the applicant.

8. Ensure technical checks and site estimation
Since a home loan is a collateral-based loan wherein the collateral is the house itself for which the loan is being taken, every lender takes a lot of caution in checking the technical details of the property to value it properly. The lender can either send an employee, a civil engineer, or an architect to check the property on the following technical parameters:

  • Stage of construction
  • Quality of construction
  • Time required to complete the house
  • Layout and approval of the layout
  • Certificates needed by the builder
  • The estimated value of the property

In case the property is already in the reselling stage and is complete, the evaluator will check for the following:

  • Age of the building
  • Construction quality
  • Surrounding area
  • Building approval plans
  • Internal & external property maintenance

This is an important stage in the loan application process. Banks usually charge the fees for this stage as part of the processing fees.

9. Finalize the loan deal
Once all the technical checks are complete and the lender is satisfied with the property on which the loan is being provided, the next step is the final registration of the deal.

The lawyer of the lender is expected to finalize the paperwork, & get them stamped at appropriate places.

10. Sign agreements
After the paperwork is in order, it is now time to sign the documents by both parties. Usually, the lender signs the documents first at the previous stage itself. When the applicant has to sign and submit the paperwork, he/she is expected to submit post-dated cheques for the duration both parties have agreed upon.

After this stage, the original papers of the property are handed over to the lender. This is done as part of the loan agreement and for the safety of the lender.

11. Wait for disbursal of loan
This is the final step in this stage. After all formalities are clear, the loan is disbursed. The lender may ask you to deposit proof for the down payment. Loan disbursal is done normally in the name of the seller or the builder of the property being bought.

Time taken at the loan disbursal stage vary from lender to lender. Some like Poonawalla Housing Finance are quick on their feet and disburse the loan soon after all the requirements are met while some take some more time to get everything in order.

Things that Affect your Home Loan Approval

There are a few important things to be kept in mind that can affect your home loan approval which is as follows:

  • Age: The age of the applicant plays an important role in deciding the fate of loan applications for some lenders. Applicants closer to retirement age may face some difficulty in getting the loan application approved.
  • Monthly income: A steady income source is a big help in getting the loan application approved. In addition, frequent job changes are not preferred by lenders as it signals possible instability in income
  • Age of property: Age of property is another critical factor in the home loan equation. In case the property on which the loan is being taken is too old, the lender may reject the loan.
  • Credit score: A low credit score is a big red flag for the lender. On the other end, a high credit score may end up giving you a higher loan amount and better terms.

You can always count on Poonawalla Housing Finance for your home loan needs. We are known for providing best-in-class service, attractive interest rates, and complete transparency. Apply for a home loan at Poonawalla Housing Finance.

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