Loan Process Guides

A comprehensive guide on applying for home loans in India.

A comprehensive guide on applying for home loans in India.

A home loan is an amount of money borrowed from the banks or housing finance companies for purchasing a new property or for reconstruction with an interest being charged on the amount and the dues being paid back in the form of EMIs (equated monthly installments).

Borrowers are entitled to certain tax benefits, balance transfer and capital appreciation among others to get the best out of their home loan.  There are different purposes of taking up a home loan which can be as follows:

  • New home loan:  Home loans taken for purchasing an already built property or for a property which is under-construction.
  • Self-construction/renovation/extension: Home loans taken for renovating an already existing property. The funds can even be used for an extension, renovation or additional construction of the house.
  • Balance transfer: Home loans taken for refinancing home loan/home equity.
  • Plot Purchase: Home loans taken for purchasing a residential plot which should get constructed within 3 years.
  • Refinance: Home loan taken up for a reimbursement of an amount used in the past few months for constructing or renovating a residential property.

Below is a breakdown of the process of applying for a home loan:

The process of taking a home loan starts with the finalising of the property with a checking made on the documents of the seller or the builder of the property. Customers then finalize the financial institution from which they want to borrow the home loan basis the rate of interest being offered. Borrowers can negotiate on the rate of interest on the basis of their credit score.

Home Loan Application Form

Borrowers will have to fill up an application form to apply home loan online with personal documents for KYC compliance which are different for salaried, self-employed professionals and self-employed non-professionals.

After the submission of documents needed for home loan, the applicant pays the fees and charges for new home loan including the processing fee to the bank which ranges between 0.25% – 0.50% of the requested loan amount.

Due Diligence

The financial institution conducts a due diligence on the bank statements including the business activity, savings, credit history and the investments. The bank also checks the average bank balance, cheque returns and cheque bounces. The loan eligibility is checked considering the net income and the CIBIL Score. Using a home loan calculator can help in calculating how much loan amount you are eligible for and what will be the EMI amount.

Technical due diligence

The lenders visit the property physically to assess the condition of the property, construction quality and encroachments. The price of the property is also evaluated. For an under-construction property, the stages of construction, quality and building plans are interrogated.

Legal Due Diligence

A title check of the property is done in order to confirm the legal ownership and to check that there are no encumbrances. The documents of the property including title document, possession certificate and agreement for sale. In case of under-construction property, documents including land title of the builder, allotment letter and builder-buyer agreement is checked.

Loan sanction

Before the loan sanction, the EMI repayment capacity of the borrower is checked on the basis of income and other liabilities. The loan eligibility is decided on the basis of LTV ratio, credit score, income, age, experience, nature of the business and employment status.

Offer letter & Acceptance

An offer letter is sent by the lender with a mention of the sanctioned loan amount, rate of interest, loan tenure, EMI installments and mode of repayment. In the acceptance letter, the final loan amount has to be mentioned which is later signed.

Loan Agreement

A loan agreement is signed by the borrower after the loan sanctioning. During the process, a post-dated cheque is also collected by the lender as a security. In case of an under-construction property, a tripartite agreement is signed between the lender borrower and the builder. If a property is in an under-construction phase, the loan disbursement is made considering the construction stage which goes directly to the builder.  

Loan disbursal

The final loan is disbursed with the loan amount being given through cheque. The cheque given by the lender is in the name of the seller/authority. The disbursal process also constitutes of checking the property in the central records (CERSAI) to make sure there are no other loans on the property. If it is a balance transfer, the cheque is made on the name of the old bank and the balance gets disbursed after the original documents have been released by the old bank. In case of construction, disbursal is made in tranches which is linked with the construction of the property.

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