Once you get into the mode of purchasing a home for your family, you first worry about funding sources. Most home buyers can only put part of the cost of the home as margin with the rest coming from a bank as home loan. The borrower hypothecates the property to the lender till the loan is fully repaid. The first step is to get the sanction letter, but don’t confuse sanction with disbursal.
Remember the old saying, “there is many a slip between the cup and the lip.” The loan is complete only after disbursal, which is when the actual bank transfer is done. Typically, the home loan disbursement process is such that funds would be disbursed in tranches. In the case of under-construction property, disbursal is done in sync with the stages of home completion. So now, let us understand the home loan disbursement stages.
Disbursement is the last step in the home loan process
When you understand the home loan disbursement process, remember that this is the last stage of the home loan process. Your home loan process starts with home loan application, then there is the sanction and finally, there is the disbursal. Normally, the payment is directly made by the bank to the seller or the developer. In between, extensive verification of documents and technical and legal valuation of property papers are done. These include link documents, title deeds and floor plans. These are part of the home loan disbursement process. Here are the 3 home loan disbursement stages, culminating in the loan amount.
- The first step is the application for the home loan, which can be completed offline or online. Apart from providing details like the details of the apartment, your income, assets, liabilities etc, there is a lot of document submission to be done. You need to upload proof of identity, proof of address, PAN card details, Aadhar Card details, income slips, 3-year tax returns, initial estimate by seller/developer, etc. Today, banks have enabled online submission of home loan application with documents.
- The second step is the sanction of the home loan. Based on the details submitted, the bank provides in-principle sanction of a said amount. The sanction letter comes subsequently. Before the sanction letter is issued, you need to give a cheque for administrative and processing charges, which is non-refundable. The sanction letter from the bank is a valid proof for your builder/seller for going ahead with the deal. Remember that the sanction is done only after the legal team evaluates the property, title deeds, link documents, encumbrances, buyer margin etc. Once the sanction letter is issued, it is the official affirmation of the bank’s willingness to fund.
- The bank may not sanction the entire limit sought by you. It will depend on your assets, liabilities, income, monthly expenses etc. You can opt in your spouse as co-borrower to get a higher limit. Once the home loan disbursement is approved you get an official sanction letter from the bank stating the disbursed amount, instalment date, loan tenure, and interest rate. Sanction letters have a time frame, after which they expire. The actual disbursement is done after you furnish receipt from builder/seller that the down-payment has been received. Once the loan is disbursed, interest clock starts ticking. You pay interest for the pre-construction period on the amount of loan disbursed and once construction is completed, your home loan EMI commences. Disbursal is normally done in stages in sync with the completion of the project.
Finer points to know about home loan disbursal
One of the basic rules here is to increase the down-payment to the maximum extent possible. The bank may normally insist on 10-15% down payment, but if you can afford 25%, it is a good idea. It reduces your EMI, and enhances your standing with the bank. Sanctions and the home loan disbursement process become smoother.
Bank funds cost of property, stamp-duty, registration, and transfer fees. Banks don’t fund home furnishing and enhancements via home loan, but these are funded through add-on loans. You can decide whether you need such additional loans. The processing charges are normally collected in advance at the time of the sanction letter itself. In the case of property under construction, the bank will only disburse based on the stage of completion, so the builder must be informed accordingly. That completes the home loan disbursement stages.
Most home loans are given on floating rate basis, so you benefit when rates fall. This is clearly mentioned in the loan disbursal sanction letter. One last word, it is essential to keep a clear banking track record so that your credit remains strong even after taking the home loan. That is in your own interest.