How to Apply for a Home Loan: A Complete Guide

The steps to complete the home loan process are as follows:

1. Fill the Loan Application Form & Attach the Documents
2. Pay the Processing Fee
3. Discussion With the Bank
4. Valuation Of the Documents
5. The Sanction/Approval Process
6. Processing the Offer Letter
7. Processing the Property Papers Followed By A Legal Check
8. Processing A Technical Check & the Site Estimation
9. The Final Loan Deal
10. Signing the Agreement
11. The Loan Disbursal

The very first step to taking Home Loan is by filling an application form. This loan application usually requires a few basic pieces of information about the applicant, generally:

• The personal details of the applicant such as name, phone number, etc.
• The residential address of the applicant
• The monthly or yearly income of the applicant
• Educational details of the applicant
• Employment details of the applicant
• Property details for which the loan is applied
• Estimated cost of the property
• Present means of financing the home property

Once the application has been duly filled, the next step will attach every valid document as necessitated by the bank. This would normally include:

• Proof of income
• Identity (or ID) proof
• Proof of age
• Proof of address
• Employment details
• Educational proof (school/diploma/degree certificates)
• Bank statements
• Property details onto which the loan is applied (if finalized)

Subsequent to the formal application and submission of documents, an applicant is mandated to remit processing fees to the bank. This is the amount collected for the maintenance of the loan account of the applicant over the year and involves the dispatch of some confidential papers like IT certificates, post-dated cheques, etc.

Bank processing fees usually range from 0.25 % to 0.50 % of the requested loan amount. For example, if a customer has applied for a home loan of Rs. 15 lakh, the processing fee will be Rs. 3,750 (at 0.25%) and Rs. 7,500 (at 0.50%) respectively.

A commission is then generated by the bank to the agent who handles the applicant’s home loan process, which to an extent is taken from the processing fee paid by the applicant. Most of the banks do have proper fee structures, but it can be negotiated. Try bargaining with processing fees since there is no crime in it.

Note: Processing fees will be there for every bank at the time of taking loans. But there are banks that provide loans without these processing fees. This hasn’t to say fall under this because it can tempt one into a higher rate of interest, stamp duties, and other legal charges.

Completion of application and documentation is followed by the waiting period when the applicant must wait for the bank or affiliated financial company to check the papers. At this point, the average time would be about 1-2 days, and if the submitted documents are complete, there is a chance that it would take less than that.

The applicant may sometimes be asked to come to the bank to facilitate a personal visit before the sanctioning of a loan. Further, this is done to know more about the applicant and whether he/she is capable of repaying the loan along with the interest amount.

Hundreds of thousands of people apply for home loans every day, and to make the processing of all the documents as fast as possible, the applicant should have a genuine front before the bank.

Any document or activity which is not genuine will be unacceptable by the bank. This is considered a criminal offense and could lead to bigger problems. After you submit your application form and documents, along with your processing fee, the bank authority will now review these documents.

Some of the details that a bank checks out in an applicant are the following ones:

• Current and previous residential addresses
• Place of work
• Verified credentials of the employer
• Contact number at the workplace
• Contact number at the residence

Note: Bank representatives visit home or office to verify user details in some cases. Sometimes, the references that applicant mention in the application form are also checked. This enables both the parties to build a clear trust.

The approval stage is perhaps the most critical phase in the process of applying for a home loan. While it can positively conclude, it can also leave a prospective borrower devastated due to a negative outcome. The outcome, however, is contingent upon the bank.

In case the bank does not accept any of your documents, the probability of approval plummets; but if all is well, your loan will probably be approved or sanctioned very shortly.

A bank will generally examine the following documents of the applicant to approve any home loan:

• The qualification, age, and experience details.
• The transactions made with the applicant’s bank.
• The monthly and yearly income.
• The current employer and the type of job he/she pursues.
• The nature of the business (applicable only for a self-employed).
• The ability to repay the loan amount with the set interest rate.

Based on the information mentioned above, the bank finalizes and communicates the maximum amount of loan that could be lent to the applicant. In conclusion, this leads to an official sanction letter, which could either be unconditional or could contain some points that need to be fulfilled by the applicant before disbursal.

As soon the loan is sanctioned or approved, the bank forwards an authenticated offer letter to the applicant which contains the following particulars:

• The amount sanctioned by the bank as loan.
• The interest rate on the total loan amount sanctioned by the bank.
• Whether the interest rate of the loan is fixed or variable.
• The duration of such loan.
• Details of repayment of loan.
• Terms, policies, and conditions of home loan.
• The Acceptance Copy

After signing the acceptance copy, the applicant has to sign a duplicate copy of the letter issued. One copy is meant for the records of the bank. Years ago, this was done along with the official fee. It is not followed now.

Note: Read all the details very thoroughly. Ensure that the interest percentages which have been discussed and agreed with the bank apply correctly now. The interest rate on home loans is negotiable features; always take a shot at it and use this feature to your ultimate advantage.

After the offer letter gets successfully done with the applicant signing it, the next thing the bank does now is think of the home property that he intends to purchase. Although this has not come to an end, the applicant can still request for a time duration to select one.

Once the property has been selected, the applicant must:

Submit all the original property documents to the bank. This will stay with them until the loan gets repaid. This also acts as security to the home loan which the applicant has applied for. Normal original property papers will include:

• Name of the seller.
• Identification and address proofs of seller.
• Name of the property.
• Address of the property.
• Chain of written documents if the seller is not the prime or actual owner.
• NOC (No Objection Certificate from the primary legal owner if any).
• NOC from statutory development board representative & cooperative housing society.
• If the land is already on the lease, the bank will require an NOC from the lessor as well.

Note: The original property papers stay with the bank until the home loan is completely repaid.

Legal Verification

The bank checks all the property papers at this moment for authentication and further on-the-line processing. This particular process is referred to as the “legal check.” Most importantly, the sale papers between the applicant and the seller are verified.

These original documents-more specifically bound into these-are sent to the bank’s lawyer for in-depth check. Only on approval of all submitted documents as clear by lawyer, all related to home loan is good. If not, applicant will have to submit few more documents for clearance.

Every bank is extra careful with the loan that it sells out and the house property with which it wishes to finance. Hence, a technical check or a double check is further done. The bank sends a property expert to check the premises an applicant intends to buy.

Such a person could either be an employee of the bank or a civil engineer or someone from an architect’s firm.

The site visit of this person is generally undertaken for monitoring the following:

• Construction status.
• Quality of construction.
• Work progress.
• Time required for constructing the house.
• Layout of the house and if it has been permitted by governing authorities.
• If the builder has valid requisite certificates for construction on the land.
• Property valuation and environmental aspects.

If the construction is already ready for resale or ready, then the representative will check for:

• Building age.
• The property, internal or external maintenance.
• Tenure of loan, if the property falls in the applicant’s eligibility criteria for the loan.
• Quality of construction.
• Surrounding area.
• The valid requisite certificates to hand over the flat/house’s possession to the buyer.
• Existing mortgage against the home property.
• Property valuation.
• Approval plans of the constructions according to government laws, etc.

Hence the bank carries out a complete technical verification to understand the progress of construction and also instill the confidence factor on the part of the applicant. This becomes one very vital phase of the home loan processing and hence cannot be skipped by the applicant.

Also note that there will be a charge for this technical check which may either be independent or included in the upfront fees.

The Site’s Value Estimation

The next thing that follows after the expert’s completion of a technical inspection for the site is determining and checking the total value of properties. Basically, this is because of the rising malpractice and an increase in cases where applicants present property purchases from associating entities at grossly inflated rates to be able to take cheap loans.

Thus, the bank becomes at a high risk to lend money to his/her applicant. Site estimates give the bank a clear measure of how much total would be given as a loan to straightforwardly sanction it.

Note: A few banks will also charge an investor-specific fee for the estimation check on properties. This may either be included in the advance amount or will be required to be paid separately by the concerned applicant.

Once the bank has completed the technical and site estimate, and the lawyer has cleared all papers, the next step is to conduct final registration of the deal. The bank’s lawyer finalizes the loan documents, drafts them, stamps them, and has them signed.

When all the documents have been submitted, the applicant is expected to sign the house loan agreement. He or she is then required to submit the cheques (postdated) for the first 36 months or the time for which both parties agree upon.

After this, the original property papers are supposed to be handed over to the bank. Some banks may even record the process of handing over these documents via video to the applicant. This is for the safety, security, and evidence that it provides to the bank.

This is the MOE stage (Memorandum of Execution), and according to the state the applicant applies in, there has to be a stamp duty corresponding to that. Paid by the applicant.

Once the applicant has signed these documents and all is legally clear, he/she is given the amount for the loan against a cheque. However, before this, a few important documents have to be provided to the bank, as this will act as the individual’s contribution to the home property.

Should the applicant be trying to source some further funds outside, then that evidence has also to be presented before part-disbursement of the loan is released by the bank. The cheque is always either in the name of the seller or the development/society authority or builder.

Nonetheless, there could be certain special conditions. For example, if the applicant has overpaid from his or her own account, then the cheque will be handed directly to him or her by the bank. Note: Don’t delay the house loan process after the approval because every day counts here. The moment the loan is sanctioned, then the interest starts counting from that day, and every single day costs! So, be sure to take the cheque on delivery date specified. Avoid attracting extra interests at all costs.