A home loan sanction letter is not the disbursal of the loan. It is a proof that the applicant is eligible to avail a certain amount of loan from its lender
Buying a house needs a lot of planning such as deciding the location of the house, arranging funds, etc. Once you have finalised the house which you need to buy, ensure that you have sufficient amount of funds to be paid to the seller of the house—to get the possession of the house on time.
With rising property rates, most of us avail of home loans before buying a house or after making partial payment for the house. It is advisable to apply for a home loan before buying a house. While availing for a home loan, it is necessary to get a home loan sanction letter from a bank or a financial institution such as an NBFC (Non-banking financial company) or HFC (housing finance company).
In the entire process of home loan—right from the application to the final disbursement, the sanction letter from a bank or financial institution holds a lot of importance.
Home loan sanction letter
- A home loan sanction letter is issued by a bank or financial institution to an applicant who has applied for the loan. The letter is a proof that the applicant is eligible to avail a certain amount of home loan from its lender (bank or financial institution) subject to the fulfillment of certain terms and conditions as mentioned by the lender.
- The sanction letter is not offered immediately to an applicant. Before sanctioning the letter, the bank or FI asks a list of documents to check the credit history and repayment capacity of the applicant.
For salaried employees, the documents include:
- Passport size photograph of applicant
- Id Proof (Pan card/ passport / driving license)
- Residence proof (Tele Bill / Company Letter / Leave & License Agreement)
- 3 months' salary slips / salary certificates
- 6 months' latest bank statement of salary account
- Form No.16 / ITR (Latest)
- Loan outstanding letter with track record (If you have any existing loan)
- Processing fees payable to the lender
- Qualification certificate the applicant
- Applicant's contribution details such as FD, PPF, recurring deposits, shares, mutual funds, etc.
- Flat booking allotment letter
After submission of the documents, the bank's credit team will conduct income verification and validate the accuracy of the information provided by the borrower. As a borrower's credit history plays an important part in the home loan application process, it is always advisable to clarify and resolve any credit related issues before lodging the loan application.
Considering there are no major issues with your income verification and credit checks, the bank will provide conditional sanction for your loan. This means that it will issue a formal letter of offer cum acceptance favouring the applicant to the loan.
What does a sanction letter include:
- The sanction letter from the bank stating the bank’s readiness to proceed with approval of the home loan include the following details:
- Total amount of loan sanctioned
- Tenure for repayment of the loan
- Interest that will be applicable on the loan—fixed or floating rate
- Actual rate of interest that is applicable on the loan
- Base rate at which the interest is calculated
- EMI and pre-EMI amounts wherever applicable.
- Period of validity of this sanction letter.
- Terms and conditions of the bank for offering the loan.
Please remember that a sanction letter is not a legal approval of the loan. A home loan borrower still has to submit further documents and sign the loan agreement before the amount can be disbursed to him. Usually a sanction letter is valid for six months.