Home Loan Procedure

What is the Home Loan Process

A home loan is a sum of money borrowed from a financial institution or bank to purchase a home. Many housing finance companies, public banks, and private banks offer housing loans, which allow you to borrow money to buy a home and pay it back in monthly installments. Depending on the borrower’s needs, home loan interest rates can be fixed or floating, or partly fixed and partly floating. Certain tax benefits are also available on home loan under Section 80EE of the Income Tax Act. However, only first-time home buyers are eligible for the income tax deduction on home loan interest.

In India, obtaining a home loan entails several steps that, before the digitization of banking, were complicated for applicants. But now, with the online method, the home loan procedure is not only simple but also faster. In just a few days, your loan could be disbursed.

Step by Step Procedure to get a Home Loan

Here are the steps of the housing loan procedure.

• Step 1 - Complete the Application Form: Completing the application form is the first step of the home loan procedure. You need to fill in your personal information as well as information about your earnings, work opportunities, current assets, property, schooling, and so on in the form. The home loan application form is available both online and offline.

• Step 2 - Attach the Required Documents: After you've completed the home loan application form, you'll need to attach supporting documents such as:

1. Identity card (PAN Card, Aadhaar Card, Passport, Driving License, etc.)

2. Address proof (Aadhaar Card, Passport, Driving License, Utility Bills, etc.)

3. Age validation (Birth certificate, 10th certificate, Aadhaar Card, PAN Card, Passport, etc.)

4. Evidence of academic qualifications

5. Income proof ( Bank statements, ITR, etc.)

6. Business evidence (Balance sheet, Profit & loss statements, Business license, Proof of business address, etc.)

7. Documents about the period of mortgaged property ( an approved copy of the building plan, a letter of consent from the society/builder, and an estimate of the cost of construction)

• Step 3 - Pay the Processing Fees: The lender may request a processing fee after you submit the home loan application form and all supporting documents. The processing fee for a home loan is non-refundable and varies between lenders. It typically ranges between 0.25% and 1.0% of the loan amount requested. In addition, many lenders do not charge processing fees. Lenders charge a processing fee to start the home loan procedure and keep the applicant's loan account active. 

• Step 4 - Document Verification: The lender will verify the submitted documents and other details. Bank representatives may even visit your home or contact your organization to validate the information you provided in your home loan application. Your lender will also request your credit score and credit report from one or more credit bureaus during the checks. The process will be expedited if all of the documents and information provided are in order and correct.

• Step 5 - Sanction Letter: You will receive a sanction letter after finally passing the preceding steps, which will typically include the following information:

1. Sanctioned loan amount

2. Applicable interest rate

3. Interest rate type – fixed or variable

4. Loan term

5. Repayment method

6. Special plan (if applicable)

7. Your home loan's terms and conditions

8. Your mortgage's policies

9. Other details, such as your home loan policies, may also be included in the letter

After receiving the letter, sign and return the acceptance copy to the lender. The acceptance copy is a duplicate of the sanction letter kept by lending institutions for record-keeping.

• Step 6 - Verification of the Property and a Legal Check: The bank will verify the property collateralised before disbursing the loan. Original copies of the property title, NOC, encumbrance certificate, and any other documents requested by your lender will be required. The property will be subjected to a legal review to ensure that the title is clear and that no disputes exist. The bank will also conduct a specialized valuation of your property. In the scenario of an under-construction property, the bank will examine the property's location, construction stage, quality, and progress, among other things. If the property is ready to sell or resell, the bank considers its age, ownership, construction quality, maintenance, location, and legal clearances.

• Step 7 - Disbursement of the  Home Loan: You will receive the final agreement from the lender once all of the above steps have been completed successfully. Subsequently, the home loan will be disbursed according to the terms that were mutually agreed upon.

How to Transfer My Home Loan

The home loan transfer procedure assists customers in lowering their EMIs by transferring their outstanding balance from another financial institution to one that offers a low-interest rate. 

Here are the steps that need to be followed for the home loan transfer procedure.

• Procure all of the documents required to transfer the balance of your home loan from your current lender.

• Acquire a consent letter from the current bank, as well as the outstanding loan amount.

• Provide all documents to the new bank to which you want to transfer the balance of your mortgage.

• The new lender will then pay off the balance owed to your old lender.

• As a result, your old loan account will be closed, and all loan payments will have to be made to the new bank.

• All property documents will then be handed over to the new bank, officially completing the home loan transfer process.

Here are a few important benefits of a home loan transfer procedure.

• It enables you to receive great customer service.

• It will lessen the burden of repayment, allowing you to pay off the loan in a shorter period.

• Your new lender may be able to provide you with additional benefits such as easy prepayment, a top-up plan, and foreclosure at no additional cost.

How to Process Mortgage Loan?

Here is a step-by-step guide to a mortgage loan procedure. 

• Step 1 - Make a Budget Estimate: The most important thing is to figure out how much you can afford. This allows you to set realistic goals for house hunting and selecting a mortgage loan. Instead of focusing on your maximum home purchase price, you might want to focus on the monthly payment you can easily pay. You can be sure you've made a budget that accounts for all of your ongoing housing costs – not just mortgage principal and interest – when you focus on a maximum monthly payment rather than a maximum home purchase price. You'll also need to determine how much money you have in the bank. This will help you figure out how much money you'll need for a down payment and closing costs.

• Step 2 - Get a Pre-Approval of the Loan: After you've ascertained your budget, you can begin looking for homes in your price range. This is also the time when you begin the process of obtaining a mortgage. 

1. Obtaining a pre-approval letter from a mortgage lender is the first step. 

2. Based on your savings, credit, and income, a mortgage lender will approve you to borrow a certain amount of money. 

3. Because the seller has solid evidence that you're qualified for a loan to purchase the home, having a pre-approval letter gives your offer a lot more clout.

• Step 3 - Look for a House and Make an Offer on it: After touring properties with your agent and selecting the home of your dreams, it's time to make an offer. Your real estate agent will be well-versed in the intricacies of structuring an offer. It may include conditions that must be met before the transaction is finalized. When you request your offer, you should also submit your earnest money deposit. Earnest money is a cash deposit made to secure your offer on a home and demonstrate your seriousness about purchasing. Depending on local custom, it could be as little as 5% of the purchase price or more.

• Step 4 - Make a Home Inspection Request: Following the acceptance of your offer, the next step in the mortgage process is usually a home inspection. 

1. A thorough home inspection reveals important information about the property that isn't visible on the surface. 

2. Getting a home inspection is important because it informs the buyer if the house requires expensive repairs. 

3. What is discovered during an inspection can be used in a sales negotiation between the buyer and the seller, as well as their real estate agents.

• Step 5 - Choose a Lender by Comparing Rates: When you were pre-approved, you may have already decided on a mortgage company. However, if you're still looking, now that you've found a home and your offer has been accepted, it's time to make a final decision on your lender. While purchasing a mortgage, keep in mind that your application does not solely determine your rate. It is also determined by the type of loan obtained.

• Step 6 - Fill Out a Mortgage Application: The majority of this application gets completed during the pre-approval stage. However, a few additional documents are required to move a loan file through underwriting. A fully executed purchase agreement, as well as proof of your earnest money deposit, updated income, and asset documentation, such as pay stubs and bank statements, may be required by your loan company. Within three business days, you will receive a loan estimate outlining the exact rates, fees, and terms of the home loan you are being offered.

• Step 7 - Get Your House Appraised: Your lender will have an appraiser come out and give you an independent estimate of the home's value. The majority of lenders employ a third–party company that is not affiliated with the lender. The appraisal ensures that you are paying a reasonable price for your home. In addition, the home must appraise the contracted purchase price for the loan to be approved at that amount.

• Step 8 - Underwriting and Processing of Mortgages: The mortgage processing stage begins after your complete loan application has been submitted.  

1. The loan processor begins by preparing your file for underwriting. 

2. All necessary credit reports, as well as your title search and tax transcripts, are ordered at this time. 

3. The information on the application is verified, including financial assets and payment backgrounds.

4. Any debt problems, such as delayed payment, will require a written explanation.

5. The file is sent to the underwriter once the processor has put together a complete package with all verifications and documentation.

6. During this time, the underwriter will thoroughly examine your information. 

7. The three Cs (Capacity, Credit, and Collateral) of mortgage underwriting will be their primary focus.

• Step 9 - Closing Day: The lender will send the closing documents to the closing attorney or title company, along with instructions on how to prepare them. The closing disclosure is one of the more important documents. It should resemble the loan estimate you received when you first submitted the full loan application.

Conclusion

A home loan is a way to purchase your dream house. You should research well about loans offered by different financial institutions. With this digital India, now obtaining a home loan and its whole procedure has become easy and hassle-free.