A home loan is a secured loan that allows a borrower to borrow a large sum of money to purchase or build their dream home. However, you must have a substantial amount of savings when applying for a home loan to cover additional costs such as stamp duty charges, registration fees, processing fees, and so on. If you are not careful with your financial planning, these expenses can add up and affect your loan affordability.
A home loan is based on a simple concept in which you pledge the property that you want to buy or build as collateral with a lender and you will be required to repay the loan principal amount as well as the interest component in the form of monthly instalments, and once you have repaid your loan in its entirety, the property title will be transferred over to the borrower.
Home loans are more affordable these days because there are numerous lenders in the market offering home loans at an affordable interest rate paired with a long-term tenor that you can repay with the help of convenient monthly instalments. You may be eligible for a substantial sanction to help you buy any property, but this is conditional on meeting the home loan eligibility criteria. A home loan eligibility calculator can help you better understand your financial situation.
What is a home loan sanction letter?
The sanction letter is one of the most important documents when applying for a home loan, and it plays an important role from the beginning to the end of the process. When the lender approves your home loan after inspecting your property and relevant documentation, they will provide you with a sanction letter, which will state that your loan amount has been sanctioned and will include important loan details such as:
- Loan Sanction Amount
- Applicable Schemes
- Rate of Interest on home loan
- Interest Type Opted (Fixed or Floating)
- Loan Repayment Tenor
- Mode of Repayment
- Pre-EMI and EMI Details
- Tax Deductions Applicable
- Base Interest Rate used Calculation purpose
- Validity of the Home Loan Sanction Letter
When the borrower receives the Sanction Letter and the Certified Offer Letter from the lender, they must verify the accuracy of all the details and terms and conditions stated in the letter, and if all of the details are correct, they must return a signed Acceptance Letter. Nowadays, lenders will let you apply for an home loan online, which will further simplify the process by sending you a digital Sanction Letter.
The sanction letter is based on the lender’s findings after considering the following factors:
- Credit history of the applicant
- Applicants’ monthly earnings
- Applicants’ ability to repay
- The applicant’s documents were accurate and legitimate.
- The legal status of the property that the applicant wishes to buy
- Property valuation (LTV) based on current and anticipated market value. (Resale price)
What is the list of documents need to submit to receive a Sanction Letter?
When applying for a home loan, you will be required to submit a number of documents in order for the lender to determine your financial standing and loan repayment capacity. The documents you submit must be accurate, and if any fraudulent documents are submitted, the lender will reject your loan application and may pursue criminal charges against you, so it is in your best interest to submit authentic documents.
If you do not submit all of the required documents in order and complete, the approval and disbursement of funds will be delayed. So, if you want a quick approval and to receive the money without any complications, you must submit all of the documents with no missing files.
Here is a list of documents that you must submit:
- Identification proof such as Aadhaar Card, PAN Card, Passport, Ration Card, Voter ID Card, Driving License, or any other form of government identification.
- Address proof such as Property Tax Receipt, Utility Bills (Gas, Electric, or Water), or Aadhaar Card.
- Passport Sized Photographs.
- Income Proof for salaried employed such as salary slips for the past 3 months.
- Income Proof for self-employed individuals such as company banking statements for 6 months.
- Financial proof such as Banking statements for the past 6 months for both salaried and self-employed applicants.
- Income Tax Returns (ITR) for the past 3 years
- Property related documents such as title deed, and blueprint.
What are some of the major key points to remember about a Sanction Letter?
- The home loan amount sanctioned may be less than the loan amount applied for, and the amount you receive is entirely dependent on your home loan affordability and credit report.
- Before applying for a loan, the applicant must understand the lender’s home loan application process in order to make the process as smooth as possible.
- The property you want to buy must have clear documentation, such as a clear title deed, and the developer’s background and approval must be clear and organised.
- If the lender requires you to provide additional documentation, you must comply.
- The applicant must sign the acceptance letter and carefully read all of the terms and conditions of the sanction letter.
