How do banks disburse home loans?

Posted by harishchalke on February 1st, 2021

Every person dream of becoming a homeowner. It ensures lifelong financial security, which most of the tenants or those living on rent miss. But buying a home is complicated in terms of down payment, finding the right locality, and choosing the desired facilities. And since property investments involve large chunks of savings, people rely on home loans.

They can buy a home loan and pay it off in easy equated monthly instalments (EMI) for tenures lasting up to 30 years. Ensure to submit the correct documents required for home loan to the lender or financial institution for quick processing and loan disbursal. Here is the process that banks follow for approving the loan:

1. Fill the application form: The home loan process starts with the borrower filling the application form. They must offer personal details such as their name, address, contact details, occupation, education details and income. They also provide details of the property they wish to purchase, its estimated cost, and the affordable down payment. Submit the home loan documents, including ID proof, address proof, income certificates, ITR of the last three years, bank statements etc., with the application form.
   
   
2. Verification of documents: The bank verifies the documents after submission and may take up to two days. Applicants may have to visit the bank and appear for a face-to-face interview, confirming the capability of repaying the loan within the mentioned tenure.
   
   
3. Background check: Banks also conduct an independent background check of the borrower’s credentials. They may investigate the information received in the application form, including the previous and current residential addresses, place of employment, certificates of the employer, office contact details, etc.
   
   
4. Processing fee payment: After the bank gets convinced of the borrower’s repayment capacity, it begins processing the home loan with a processing fee between 0.25 per cent to 0.50 per cent of the principal loan amount + GST.
   
   
5. The loan approval process: The bank decides whether to approve or reject the loan application based on the home loan apply document. The borrower can determine the maximum loan amount as approved by the bank and the interest rate charged according to various tenures. The bank sends an official sanction letter confirming approval of the loan application. Submit the original property documents, which remain in the bank’s custody until full repayment of the loan.
   
   
6. Loan disbursal: It includes the registration of the loan deal, i.e., acceptance of terms and conditions of sanction by the borrower, the signing of the list of documents required for home loan and the disbursement as per terms stated in the Sale Agreement, including down payment by the lender.