Buying a home has become a lot easier than it was a decade ago. Areas that were unaffordable for a mid-segment homebuyer now host a multitude of affordable housing options. The government has also announced several initiatives to make dream home a reality, especially for the middle class buyers.
A majority of the homebuyers seek home loans to fund their purchase which is why the government has also taken initiatives for reducing interest rates on home loans. The recent announcement of new income slabs for home loan interest subsidy has made dream homes 2.4 lacs cheaper.
So this is the perfect time to buy your dream home. However, as a smart buyer, you should be well versed with the complete home loan procedure to get a better understanding.
Step 1- Home Loan Application
The procedure begins when you send a formal home loan application to the bank. Bank will ask for your personal details in order to scrutinize your financial standing and loan eligibility. For this, you will have to submit a set of documents including identity proof, age proof, address proof, income proof, employment details, details of existing properties, etc.
Step 2- Processing Fee
The bank will charge you with loan-processing fee which is the charge for commencing and maintaining the process of home loan and it is non-refundable. Usually, the charge is between 0.25% and 0.50%. Some banks have waived off the processing fee; you can negotiate the same.
Step 3- Verification and Evaluation of Repayment Capacity
After you have paid the processing fee, bank will start the verification process. The banks will evaluate your credit history and decide the amount of loan for you. For this, you will be asked to show up for a personal discussion with the bank’s representative who will ask for a number of details. The information provided by you will be verified by the bank for which they might visit your office and residence.
Evaluation of repayment capacity is the most crucial part of this process. Based on their verification and judgement, the bank will either approve your home loan or reject it. You can also get a conditional approval which means that you will have to fulfill a set of conditions before the actual disbursal of the loan amount.
Step 4- Offer Letter
After being satisfied with all the information and repayment capacity, bank will send you an offer letter which will include information related to tentative principal amount, rate of interest, type of interest rate (fixed or floating), tenure, repayment mode and other terms and conditions. If you accept the offer, you have to sign the acceptance letter, a copy of which will be kept with the bank for records. The bank may levy some administrative fees at this stage.
Step 5- Property Verification
The reason why home loan is known as ‘mortgage loan’ is because your property stands as collateral for it and in case you are unable to make the payment, bank has the right to liquidate the property to get their loan amount. Hence, it is important for the bank to verify the property. There will be a legal check to ensure that it is clear of all land disputes and its title is clear. If it is an under-construction property, the location, title, quality and completion timeline will be assessed by the bank’s property valuators. They also assess the property’s value on certain parameters which will be the lead for deciding the actual disbursal amount.
Step 6- The Actual Home Loan Disbursal
After the entire verification and above-mentioned formalities have been fulfilled to the best satisfaction of the bank, registration process initiates. You are required to prepare all legal documents in the correct format which is approved by the bank’s lawyer on stamp papers. Post-dated cheques for the agreed tenure are also required and you will have to sign the home loan agreement.
After you sign the agreement, the disbursal process will begin as agreed upon, that is, a lump-sum amount or in stages.
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