When it comes to housing loans, you often get confused between concepts like home loan sanction and home loan disbursal. These are actually 2 different steps to getting the loan.
The home loan sanction is an approval from the bank or lender about how much they are willing to fund. This is dependent on the repayment capacity of the borrower and the basic title deeds of the property.
However, once the loan is sanctioned, the borrower needs to bring in their share of equity upfront before the loan disbursal. When the loan is disbursed, the bank or lender is actually taking the risk, so there are very elaborate checks by the legal team, the architects and the structural engineers affiliated with the lender. In short, you need to first understand how home loan is sanctioned and the next logical step is to understand the home loan disbursement process.
Home Loan Sanction & Home Loan Disbursement - What’s the difference?
The sanction is the first step in the home loan process. The lender will approve the loan application of the borrower after verifying the applicant’s background, required documents, and CIBIL score. The lender then also does a check of the property, the legal titles of the builder and the link documents. If all these are satisfactory, then the lender sanctions the loan and the sanction letter is issued.
The sanction letter is sufficient for the borrower to approach the builder and start the property work. Most terms of the sanction are mentioned in detail in the sanction letter.
The home loan disbursement process on the other hand is when the loan amount is actually delivered to the borrower. In most cases, the lender directly pays the loan amount in instalments to the builder/seller. However, after the sanction and before the disbursal of loan, the lender carries out technical, legal, and structural checks. The borrower has to produce the allotment letter, photocopies of the title deed, the encumbrance certificate, the agreement to sell, and all link documents. Then the disbursal starts.
How does the home loan sanction process work?
When the lender approves a loan and issues the sanction letter, it is only then that the borrower would be able to confirm the booking of the property and make the down payment. Here are the steps to the home loan sanction process that most lenders follow.
- The first step is to check and verify the eligibility of the home loan borrower. This depends on the income of the borrower, income stability, CIBIL score, existing loans, etc. The thumb rule lenders use is that borrowers must not use more than 50% of their take-home income for servicing the loan.
- Property documents are verified at this stage to ensure they are genuine. The borrower must submit copies of the sanctioned construction plan approved by a competent authority. This is more of a preliminary check at this stage.
- The lender also checks the ability of the borrower to pay the margin money. If the amount is relatively high, lenders often insist on proof of margin money.
- Before the sanction, the borrower must submit basic documentation to the lender like photograph, identity proof, residence proof, income proof, tax returns, sale deed of the property, 6-month lender statement etc.
- Based on the above, the sanction letter is issued. The sanction letter comprises of details like the sanctioned amount, repayment period, rate of interest, method of charging interest, floating rate/fixed rate, validity of the sanction letter, etc.
The signed sanction letter –with lender stamp– is proof that the loan has been sanctioned and is ready to be disbursed.
After the Sanction, comes actual Disbursal
Having seen how home loan is sanctioned, the next step is to understand about the detailed home loan disbursement process. Disbursal is the actual paying out of the loan and can be either to the account of the borrower or directly to the builder/seller. The disbursement starts only after the borrower has a margin share and furnishes proof of the same. In the case of under-construction property, the loan is disbursed in parts with the completion of each stage.
Before the home loan is disbursed, a lender-appointed architect must certify that the proposed construction is in adherence to the sanctioned plan. In addition, the civil engineer and structural engineer must certify the quality of the construction while the legal team must approve the title deed, encumbrance certificate, link document, society shares (if any) etc. The process starts with how home loan is sanctioned and concludes with the home loan disbursement process.