Home Loan Procedure: Step-by-Step Process for Home Loan

Home Loan Procedure

6 mins read

Last updated on 7th June 2024

Getting a home loan is a big step towards owning your dream home. It starts with you filling out an application and providing some documents. The bank takes a good look at everything to make sure you can handle a loan and that the property is worth it. Once they give you the thumbs up, they'll let you know how much you can borrow. The last step? They give you the money, and you start your journey as a homeowner. It's a process, but knowing what to expect in a home loan procedure can make it much easier. 

Table of Contents

Step-by-Step Guide for Home Loan Application Process

The home loan process in India involves several steps, from application to disbursement. Understanding each step can help you navigate the process more smoothly and increase your chances of approval. Here’s a detailed overview:

1. Research and Comparison

Start by researching various banks and financial institutions that offer home loans. Compare interest rates, loan tenure, processing fees, and other terms and conditions. Use online tools and resources to get a sense of the best offers available. BASIC Home Loan has proprietary tech for best lender selection which means you wouldn’t have to go through all the hassle.  

2. Check Eligibility

Each lender has specific eligibility criteria, including age, income, credit score, and employment status. Make sure you meet these criteria before applying. Common requirements include:

  • Minimum age: 21 years
  • Maximum age at loan maturity: 60 years (salaried) or 65 years (self-employed)
  • Stable source of income
  • Good credit score (typically 700 or above)

Suggested read: Home Loan Processing Time

3. Application Submission

Once you choose a lender, you need to fill out a home loan application form and submit it along with required documents. These documents usually include:

  • Identity proof (Aadhar card, PAN card, passport, etc.)
  • Address proof (utility bills, rental agreement, etc.)
  • Income proof (salary slips, bank statements, IT returns)
  • Property documents (title deed, sale agreement)
  • Employment proof (employment letter, business proof for self-employed)

4. Processing Fee Payment

Lenders charge a non-refundable processing fee to cover the administrative costs of processing the loan. This fee is typically a percentage of the loan amount.

Suggested read: Home Loan Processing Fees of All Banks

Unveiling the Fee Structure: The processing fee usually ranges from 0.25% to 0.50% of the requested loan amount. Let's say you've applied for a home loan of Rs. 15 lakh. The processing fee would be Rs. 3,750 at 0.25% and Rs. 7,500 at 0.50%.

Remember, this fee may include a commission for the agent handling your home loan process but don't worry. Many banks have a flexible fee structure that can be negotiated. It's worth trying to discuss and bargain the processing fee to get the best possible deal.

Keep up the enthusiasm and determination as you progress towards becoming a homeowner!

5. Verification and Assessment

The lender will verify the information provided in your application and assess your creditworthiness. This includes checking your credit score, verifying your employment and income, and evaluating the property’s value. The lender may also conduct a physical inspection of the property.

6. Sanctioning the Loan

If the lender is satisfied with the verification and assessment, they will issue a sanction letter. This letter outlines the approved loan amount, interest rate, loan tenure, and other terms and conditions. Review the sanction letter carefully and accept it if you agree with the terms.

7. Legal and Technical Check

The lender will conduct a legal check to ensure that the property has a clear title and is free from any legal disputes. A technical check will also be performed to assess the construction quality and value of the property.

Suggested read: Home Loan Disbursement Process

8. Loan Agreement and Disbursement

After the legal and technical checks, you will need to sign the loan agreement. Once the agreement is signed, the loan amount will be disbursed. The disbursement can be in full or in stages, depending on the type of property and construction status.

Things That Affect Your Home Loan Approval

Several factors influence whether your home loan application will be approved. Understanding these factors can help you prepare better and increase your chances of getting approved.

1. Credit Score

Your credit score is a critical factor in determining your loan eligibility. A high credit score (700 and above) indicates good creditworthiness and increases your chances of approval. It also helps you secure better interest rates.

2. Income and Employment Stability

Lenders assess your income to ensure that you have the financial capacity to repay the loan. A stable job with a regular income increases your credibility. For self-employed individuals, consistent business income and profitability are crucial.

3. Existing Debt Obligations

Lenders consider your existing debts, including credit card dues and other loans. A high debt-to-income ratio (DTI) can negatively impact your loan approval chances. Ideally, your total EMIs should not exceed 50% of your monthly income.

4. Property Value and Location

The property’s value and location play a significant role. Lenders prefer properties in well-developed areas with good resale value. The property should also meet the lender’s technical and legal standards.

5. Loan Amount and Tenure

The requested loan amount and tenure also affect approval. A higher loan amount may require a higher income and better credit score. Shorter loan tenures result in higher EMIs, which might impact affordability.

6. Age of the Applicant

Age is another factor that lenders consider. Younger applicants have a longer working life and higher repayment capacity. For older applicants, lenders might offer shorter tenures to ensure the loan is repaid before retirement.

7. Type of Employment

Salaried employees generally have an easier time getting loans compared to self-employed individuals, due to the stability of income. Self-employed applicants need to provide more documentation to prove income consistency.

8. Down Payment

A higher down payment reduces the loan amount and indicates financial discipline, which can positively impact your approval chances. Lenders usually finance up to 80-90% of the property value, requiring you to arrange the rest.

By understanding the home loan process and the factors affecting approval, you can better prepare and improve your chances of securing a home loan in India.

FAQs about the Home Loan Process

The time required to get a home loan can vary from 7 days to a month, but the document review process typically takes just 1-2 days or even less if everything is in order. However, the entire process from application to disbursement can take a few weeks.

The process of housing loans involves several steps: filling out the application, attaching necessary documents, paying the processing fee, having your documents evaluated by the bank, getting approval, receiving an offer letter, conducting a legal check on the property, a technical check and site estimation, signing the agreement, and finally, the loan amount is disbursed. 

Full disbursement in a housing loan means that the entire loan amount has been released. This typically happens after all the paperwork is signed and legally verified. 

The home loan EMI starts accruing interest from the day of loan approval. Therefore, it's important to take the cheque on the specified delivery date to avoid paying additional interest. 

The documents required for a home loan typically include income proof, identity (ID) proof, age proof, address proof, employment details, educational certificates, bank statements, and property details (if finalized).

Yes, home loans are based on salary. The bank reviews details like your monthly and yearly income, among other factors, to determine your ability to repay the loan with the set interest rate. 

The ease of getting a house loan in India can depend on various factors, including your income, credit score, the property you wish to purchase, and the bank's terms and conditions. 

The amount of home loan you can get on a 10 lakh salary would depend on various factors, including the bank's terms and conditions, your credit score, and other financial obligations. The bank will communicate the maximum loan amount you're eligible to receive through an official sanction letter. 

Published on 11th December 2023