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What is the importance of the home loan sanction letter?

By Finserv MARKETS - Aug 27,2019
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Importance of Home Loan Sanction Letter

The process of applying for and getting approval for your home loan can seem long and daunting. The home loan sanction letter is one document in a long list of those required for smooth disbursal of your home loan. However, this sanction letter is perhaps one of the most important documents you will need during the process of applying for your home loan.

What is a home loan sanction letter?

A home loan sanction letter is issued after the sanction process of your loan, but before you receive your final home loan agreement from your lender. This letter acts as proof that the applicant of the loan is eligible to avail a certain amount of loan with certain terms and conditions as mentioned by your bank or lending institution. Here it is critical to note that the sanction letter is not your legal approval of your loan. There are several other documents and checks required after you accept your sanction letter before the bank or lending institution will send out your final loan agreement. Usually, your home loan sanction letter is entirely based on your eligibility for a home loan. Most banks and financial institutions will highlight their eligibility criteria online to help you garner an estimate of the amount of loan you can avail and the interest rate that you will be charged.

How do I get my mortgage sanction letter?

Loans are usually of a substantial amount, so it is important that everything is in order for both you and your lender. Before you are given the final loan agreement, you will be issued what is known as a mortgage sanction letter, informing you that you’ve been approved for the loan. Lenders will also consider the current value of the property that will be mortgaged, as well as the potential for appreciation in its value. Hence, it is important that you go through the sanction letter carefully.

What is the sanction process of a bank/lending institution?

Before sanctioning your loan, your bank or lending institution will ask you for a list of documents to check your credit score, repayment capacity, details of your property amongst several others. These documents include your salary slips, income tax returns, identity, loan track records, amongst several others.

After you have submitted these documents the bank will conduct a verification to ensure that all the information you have provided checks out, and if you meet the eligibility criteria and surpass income verification and credit checks you will receive a sanction letter for your home loan. The conditions highlighted in this sanction letter could be the ones you had asked for, or could be different as per the bank’s assessment of your credit history, income, outstanding loans and other factors. Most banks and lending institutions will charge a processing fee for all the effort required to generate a sanction letter. It is important to note that even if your home loan is not approved, you will not be refunded this processing fee.

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What is the validity of a home loan sanction letter?

A home sanction letter is a letter that informs the applicant that they have been found suitable for a Home Loan, and the same shall be approved subject to fulfilling the remaining formalities as prescribed by the lender.

This letter is based on the findings of the lender after examining the following aspects:

  • Credit history of the applicant
  • Current income of the applicant
  • Repayment capacity of the applicant
  • The authentication of all the documents submitted by the applicant.
  • Legal validity of the property being purchased through Home Loan.
  • The current and anticipated market value of the property that is to be mortgaged to the bank as security.

Most banks charge a processing fee for all the efforts that they put in order to get the sanction letter ready. Note that most often this processing fee is non-refundable even if the home loan is not approved. The borrower must also keep in mind that the sanction letter in itself is not a legal approval of the loan and submission of further documents is required along with a signed loan agreement before the loan disbursal.

The typical validity of a sanction letter is about six months and if the home loan is not availed during this time, the sanction shall lapse and the whole process will have to be redone.

For the fast processing of the home loan application, the applicant must keep all the required documents ready. This way, the process can be completed at the earliest. At times the applicant may also have to submit a copy of the home sanction letter to the developer of the project where they intend to purchase a house.

What does a sanction letter include?

In the entire process of availing a loan a home loan sanction letter plays an important role. This letter is, however, not issued immediately after the loan application. Before sanctioning the letter, Banks/ NBFC checks with the list of required documents, credit history as well as the loan repayment capacity.

The home loan sanction letter states that the Bank/ NBFC is ready to proceed with the approval of a loan. The following are the details that are included in a sanction letter.

  • Total home loan amount that is to be sanctioned

  • Tenure for the repayment of the loan

  • Applicable interest rates – fixed or floating Rate of Interest (ROI)

  • Actual applied ROI

  • Base Rate for interest calculation

  • Applicable EMI or Pre-EMI amount

  • The validity period of the sanction letter

  • Terms and Conditions of the lender

How can I reduce my home loan sanction amount?

To reduce your home loan sanction amount as a new borrower, you need to choose a lender that offers home loans at a lower rate of interest. If you are an existing home loan borrower and looking for better interest rates in order to reduce your EMI payments, then you can make use of certain strategies to lower your loan EMI and reduce the debt burden. 

  1. Refinance the loan by changing your lender

  2. Negotiate the service terms with the existing lender

  3. Make your home loan prepayment from time to time

Why is your home loan sanction letter important?

It is very important for you to understand and read all the terms and conditions of your home loan sanction letter. This letter contains information about your loan agreement, including the total amount of loan being sanctioned, the interest rate applicable on your loan, tenure of your loan, whether the interest rate being charged is fixed or floating, amongst other important details.

Once you have these details in your sanction letter, you can use an online housing loan EMI calculator to calculate the affordability of the loan. After doing this you can decide to approve the letter and take up the offer or shop around to get a better deal from other lenders. Most home loan sanction letters have a validity of around 6 months. This means that the terms and conditions highlighted in the sanction letter will no longer be valid, and you will be required to apply for a fresh loan.

You should take advantage of the attractive Bajaj Finserv home loan interest rates and enjoy 100% transparency in all the terms and get the freedom to choose your own repayment tenure if you opt for a Bajaj Finserv Home Loan, available on Finserv MARKETS. Once you have completely read and understood the terms and conditions of your sanction letter, you should submit all the additional required documents to move to receive legal approval of your loan. This will be the final agreement you will receive. So go ahead and buy the dream home you have always wanted and leave all your financing worries to Finserv MARKETS.

You can also get to know about the perfect credit score for home loans.

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522