Owning a home has always been an aspiration for every individual has at some point in life as it is certainly a great feeling to have a place to call your own.
With favourable real estate policies in place and home loans available at the all-time lowest interest rates, purchasing a home is certainly one of the best investments you can make.
If you’re a first-time homebuyer, you might be wondering about what all steps are involved in the home loan process. In this article, we’ll guide you step by step towards the same to make your home loan journey a hassle-free experience.
Step 1: Selection of Bank
The first and the foremost step involved in the home loan process is the selection of a bank or financial institute which will be your home loan provider. This is a very important step as you have to seek out the bank providing the best interest rate and also look out for the trustworthiness of the bank. It is important to look out for the service factor since you’ll be engaging with the bank for a long period.
Step 2: Fill in the application form
The next step is filling in the application form for your chosen bank which can be done online for almost all the banks or you can go to a nearby branch and apply. The application form will require basic information about the applicant which usually includes:
Personal Details of the applicant (Full Name, Mobile Number, Email etc)
Residential Address of the applicant
Monthly or Annual Income of the applicant
Educational Information of the applicant
Employment Details of the applicant
Property Details for which loan is being applied for (name, location, unit, size etc)
The Estimated Cost of the property
Means of financing for the property purchased
Step 3: Furnishing of Documents
Once you’ve filled in the application form, you are required to furnish a few documents for the successful application for the home loan. These documents help banks to authenticate the applicant, determine his/her financial health and also to derive the eligible loan amount for the applicant. The following documents need to be submitted by the applicant:
Applicant’s ID Proof having name and picture of the applicant which can include PAN Card, driving license, voter ID card, Aadhaar Card, passport or ration card if it contains the applicant’s picture.
Applicant’s Income Proof which includes Income Tax Return (ITR) for last 3 years, salary slips for last 6 months, bank account statement for last 6 months, form 16 or form 16A for last 3 months and other bank accounts’ details if any.
Applicant’s Age Proof which can be PAN, driving license, school/college transfer certificate, passport etc which discloses the Date of Birth of the applicant.
Applicant’s Address Proof for authentication of residential address. This can include Aadhaar, Driving License, Voter ID, Passport, Ration Card.
Applicant’s Employment Details which include company name, registered address, nature of the business, applicant’s employment history, designation, monthly/ annual salary etc.
Applicant’s Educational Proof which can include the certificate of highest qualification
Bank Statements of the applicant for the past 6 months to monitor the nature of transactions and if any loan is already associated with the account.
Property Details include the legal documents of the property for which the loan is being applied.
Step 4: Payment of the Loan Processing Fee
Once you’ve made the application along with furnishing necessary documents for the home loan, the bank will determine the amount of loan which you are eligible to apply for and the bank will disclose the same to you. You are free to choose the amount of loan you would like to apply which can be maximum up to the eligibility disclosed by the bank.
The next step is the payment of the processing fee. Banks usually charge about 0.25% to 0.50% of the requested loan amount, differing from bank to bank. It is better to know about the rate charged by the bank for loan processing upfront to avoid any confusion later.
Step 5: Valuation of the Documents
Banks usually receive thousands of home loan applications and while processing the same, they have to be very cautious that the applicant is completely genuine. To ensure the same, banks evaluate all the documents furnished by the applicant and conduct an audit of the application received. Furnishing any fake document is fraudulent activity and comes in the category of fraud.
Bank verifies the following details during the application audit:
Residential Address (previous and current)
Place where the applicant is employed
Credentials of the employer
Workplace contact number
Residential contact number
Banks generally conduct a physical verification by sending their representative to work and residential address and also at the place of references listed in the application to create genuine trust between the parties.
Step 6: Loan Sanction/ Approval
Once the bank is satisfied that the applicant is genuine and the details mentioned in his application are correct, the next and most important step in the loan application process is loan approval.
A bank usually deep-checks the following documents to approve a home loan:
The qualification, age, and experience details.
The transactions were made with the applicant’s bank.
The monthly and yearly income.
The current employer and the type of job he/she pursues.
The nature of the business (applicable for self-employed).
The ability to repay the loan amount with the set interest rate.
If everything is well in place, the loan will be sanctioned and the bank gives an official sanction letter that may or may not pertain to certain clauses/ conditions which need to be satisfied by the applicant before processing the loan.
Step 7: Processing the Offer Letter
Once the loan is sanctioned or approved, the bank disburses a certified offer letter, which mentions the following details:
The loan amount that is being sanctioned.
The interest rate on the total loan amount.
Whether the interest rate is variable or fixed.
The loan’s tenure details.
The mode of loan repayments.
Terms, policies, and conditions of the home loan.
The Acceptance Copy
Once the applicant agrees to the offer letter, he or she has to sign a duplicate copy of the offer letter, which is for the bank’s records.
Important: Make sure to read all the details carefully. Duly verify if the rate of interest is applied as per the percentage discussed and decided with the bank.
Step 8: Processing the Papers & Legal Check
Once the offer letter is officially accepted by the applicant, the bank will now focus on the legal aspects of the property which is to be purchased.
The bank will collect all the original property documents to verify their legality. It remains with them until the loan is repaid. Also, this serves as a security towards the home loan the applicant has applied for.
The original property papers will normally include the following details:
Identification and address proofs of the seller
Name of the property
Address of the property
The chain of written documents if the seller isn’t the primary or actual owner
NOC (No Objection Certificate) from the primary legal owner (if any)
NOC from the statutory development board representative & cooperative housing society.
If the land is already on a lease, the bank will require a NOC from the lessor as well.
Important: The original property papers stay with the bank until the home loan is completely repaid.
Once the property papers are submitted, the bank then validates them for authentication. This process is termed a “legal check.” The sale papers between the applicant and the seller are verified.
These original documents are sent to the bank’s lawyer for an in-depth check. Only when the lawyer approves all the submitted documents as clear, then everything related to the home loan is good. If not, the applicant will be asked to submit a few more documents for verification.
Step 9: Processing A Technical Check & The Site Estimation
All banks are highly cautious with the loan they lend and the home property they plan to finance. Hence, a technical check or a double check is further done. The bank sends a property expert to check the premises an applicant intends to buy.
The visit to the “property site” is conducted for verifying the details given below:
The stage of construction
Quality of the construction
The time required to build the property
The layout of the property and whether the governing authority’s approval
If the builder has valid requisite certificates for construction on the land
Property valuation and environmental areas
If the property is for resale or in a ready stage, then the bank will check for:
The building’s age
The internal or external property maintenance
The loan tenure and if the building falls within the applicant’s loan eligibility criteria
The quality of the construction
The surrounding area
The valid requisite certificates to hand over the flat/house’s possession to the buyer
The existing mortgage on the property
The property valuation
The building’s approval plans, following the government laws, etc.
The bank conducts a proper technical check to understand the construction progress and to gain the trust of the applicant. This is an important phase of the home loan process and hence, cannot be skipped by the applicant. Also, bear in mind that there will be a fee for this technical check, which may be either charged separately or might be taken from the upfront fee.
The Site’s Value Estimation
Technical estimation of the project is then followed by determining and checking the property’s overall value. A site’s estimation can help the bank to determine the total loan amount so that the sanction is straightforward.
Note: A few banks charge an extra fee for the estimation check as well. It is covered either by the upfront amount or the applicant might be asked to pay separately.
Step 10: The Final Loan Deal, Signing the Agreement, & Disbursal
The Final Loan Deal
Once the technical and site’s estimation is done by the bank, and the lawyer clears all the paperwork, the next step is the final registration of the deal. The lawyer of the bank finalizes the loan documents, drafts them, and have them stamped as well assigned.
Signing the Loan Agreement
After the paperwork is complete, the applicant has to sign the agreement of the home loan. He/she has to submit the cheques (post-dated) for the initial 36 months or the duration both the parties have agreed upon.
After this, the original property papers have to be handed to the bank. Some banks can even create a video recording of the applicant handing over these papers to the bank. This is for the bank’s security, safety, and proof.
This stage is known as the MOE (Memorandum of Execution) and has a stamp duty based on the state the applicant applies to. This duty is paid by the applicant.
The Loan Disbursal
Once the applicant signs the papers and everything is legally clear, the loan amount is given via cheque. However, before this, the applicant has to submit a few essential documents to the bank, as these will serve as his/her contribution to the home property.
If the applicant is trying to source some more funds from outside, then the pieces of evidence have to be submitted as well. Only then, the bank releases the loan’s part-disbursement. The cheque is always under either the seller or development/ society authority or builder.
Nevertheless, there can be a few exceptional cases too. Say, for instance, the applicant has made excess payment from his/her account, then the cheque is handed to him/her directly from the bank.