When you apply for a home loan, the first step involves filling out some paperwork for the lender. Since the home loan amount is usually substantial, the process can get tedious and confusing. A home loan sanction letter is a very important part of this process. In simple words, a sanction letter means a letter issued by a bank or NBFC to inform a borrower if their loan is approved. It’s important to keep in mind a sanction letter does not state the legal approval of a loan. Sounds complicated? Don’t worry. Let’s take a deeper look at home loan sanction letters and find out the hidden, but important details to help you through the process after approval.
What is a Sanction Letter?
As mentioned, before the final loan disbursement, the lender needs to make sure that certain parameters are met and everything is in order. To inform the borrower that they are approved for the home loan, the lender issues a sanction letter to the borrower. Based on certain factors like creditworthiness, debt history, age, etc, the bank will set up terms of repayment for your home loan. The sanction letter will contain the terms and conditions the bank has decided on for the loan along with the basic information about the borrower.
The letter indicates that the home loan application has been successful, and on successful completion of the paperwork and evaluation formalities and other conditions, the loan will be approved subsequently.
A Home loan sanction letter may have the following information:
- Loan Amount Sanctioned
- Repayment Tenure
- Validity for loan Sanction
- Mode of repayment
- The applicable home loan rate of interest
- Type of interest rate whether Fixed, Variable, or Hybrid
- Special scheme (if applicable)
- Home loan tax benefits
- Terms and conditions of your home loan
Based on the information provided by the borrower during the application and verification process, the bank decides an in-principle loan amount to be disbursed upon approval. This letter is known as the in-principle sanction letter. A usual in-principle sanction letter format will contain details about the bank loan sanction letter along with the terms and conditions agreed by the bank.
A Home Loan Sanction Letter is based on eligibility. A general loan Sanction letter format will provide the validity for the loan disbursement as well. If the borrower decides to go further with the loan, they can carry out the process further in the specified validity on the home loan sanction letter.
What Is the Process of Home Loan Sanction?
The entire Home Loan system can be widely classified into 3 dimensions: application, sanction, disbursement. While application and disbursement are quite systematic with paperwork and formalities in place, the process of receiving bank loan sanction letters is not very organised and depends on certain varying factors. Some of the factors that may affect your eligibility for a home loan sanction are:
Age is an important factor for any home loan sanction process. The younger you are, the better the terms are for a Home Loan. Similarly, if you are closer to getting retired, finding a lender to sanction your home loan may prove difficult.
- Profession and Income:
Borrowers with unconventional or irregular employment statuses find it difficult to get a loan approved. This is because the lender considers the profession and income of the borrower as an important factor for loan repayment capability. Irregular or risky employment may have a negative impact whereas a steady source of income can improve your chances of getting a home loan sanction letter exponentially.
- Age of Property:
If you are taking a loan against a property, the lender will evaluate the value of the property before the approval. If the property is old, it’s valued less. The lender will run checks to account for structural collapse and give a rough valuation after considering other legal and technical factors.
- Credit Score:
A healthy credit score implies a better ability to repay. Lenders prefer borrowers with a good credit history and sufficient creditworthiness. Your loan may be denied based on your credit history.
The number of dependents/co-applicants, for eg. spouse, children, or parents, will also be considered before your loan is sanctioned by the lender. A higher number of dependents may lead to less disposable income and hence the lender may decline your Home Loan application based on repayment capabilities.
These are some of the factors which may affect your eligibility for a bank’s loan sanction letter. After you have applied for the home loan, the lender’s team will verify all the details provided by you. Based on the factors discussed above, your eligibility will be determined by the lender during this process. Upon successful verification by the lender’s team, the lender will inform the buyer if they are eligible for the home loan through the sanction letter. If rejected, the borrower can improve upon the factors mentioned and apply after some time again.
Importance Of Home Loan Sanction Letter
Now that you know what a typical sanction letter contains, let’s walk through what makes a home loan sanction letter so important during your search for the perfect home loan. It is very important to go through the sanction letter in detail. There is a lot of vital information in the fine prints and if you are not an expert, you may get confused.
A sanction letter contains important terms related to the repayment of a loan including details about processing fees, late payment charges, etc. After approval, you can compare sanction letters from different institutions and choose the most favourable terms tailored to your requirements. If you have any problem understanding the content of your sanction letter, reach out to your lender or any financial expert immediately and get your queries cleared.
Documents Required for the Home Loan Sanction Letter
Verifying documents is a very important step for your lender as it is the only way through which they can determine the borrower’s repayment capabilities. The lender wants to know its borrowers better and need the documents:
- To identify your financial records
- To verify your credit score
- To know your nationality and age
- To know your monthly income
The type of documentation required by the lenders are:
- Proof of identity- Aadhaar card, PAN Card, Driving License, Voter ID card, Passport of the borrower are the accepted documents.
- Address Proof- Aadhaar Card, PAN Card, Last three months utility bill for the property are accepted
- Income proof- Salary slip, ITR, or Form 16 (if applicable) is accepted
- Property Documents: As per requirement.
The requested documents may differ based on your type of employment. Here are the documents you need to submit to some of the top lenders if you wish to proceed with your Home Loan Sanction Letter.