Understanding how a Home Loan process works is essential. It allows you to be prepared for everything you need for your application well in advance and ensures that your loan process moves forward smoothly. One of the most crucial steps in the Home Loan application process is the sanction stage. At this stage, you get to know whether your loan application is approved or rejected.
The sanction process is quite simple; all you need to do is submit your loan application form and necessary documents for verification. Once the bank has verified all your documents, the next step is checking your eligibility for the loan applied. Here the bank conducts an inquiry into your credit history and credit score. They also look at the current value of the property and the appreciation value it can offer over time. On being satisfied by the verification and evaluation, the bank issues a Home Loan sanction letter.
The article will give you a detailed overview of the role of a sanction letter in the process of your Home Loan approval.
What is a Home Loan sanction letter?
A sanction letter is a document provided by the bank that states you are eligible for the loan amount you have applied for. It is proof that you have secured the loan, and it includes all essential details about the loan transaction.
Depending upon your eligibility, creditworthiness as a borrower and other financial factors, the bank will offer the sanction letter. The letter will provide the same terms you had asked for or reasonable changes based on your eligibility.
What is the importance of a sanction letter in a loan process?
As the letter contains details about the terms of the loan repayment. It gives you a chance to review and decide whether to go ahead with the loan or not. Moreover, it allows you to negotiate with the lender, compare and switch to another lender for a better deal.
The bank loan sanction letter gives you an estimate of the EMI amount payable. It gives you an idea of whether you can afford the loan and plan your expenses.
Some real estate developers may ask for a copy of your loan sanction letter before you make the final purchase of the property.
It acts as proof of communication between you and the lender about the terms of the loan. This comes in handy to settle any dispute if it may occur in future.
What is the Home Loan sanction letter format?
The sanction letter includes the following information about the loan approval:
The total loan amount
Interest rate
Type of interest rate – floating or fixed
Base rate is taken into consideration for calculation
Tenure of repayment
EMI payment details
The validity period of the sanction letter
Tax benefits
Special schemes, if applicable
How is a sanction letter different from the final loan agreement?
Most people confuse a sanction letter be the final loan agreement. However, this is not true. A sanction letter does not mean that your loan is approved. It is simply proof that you are eligible for the loan approval. It has not legally binding. You have to undergo further processing for the final loan approval. The final loan agreement will be considered as the last word concerning the terms of repayment.
On receiving the sanction letter, make sure you go through it point by point. If the repayment terms seem reasonable to you, accept them and send a signed copy of it to the bank. Several banks now offer a digital sanction letter to make the loan approval process quicker and convenient for you. Check if your bank offers the option of a digital sanction letter.
Note: Always remember to accept the sanction letter within its validity period. After the validity period, the bank will not accept your application, and you will have to apply for a new one.
Did you know your Home Loan also comes with Home Loan stamp duty and registration charges? Click here to read more.
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*Terms and conditions apply. Home Loan at the sole discretion of HDFC Bank limited. Loan disbursal is subject to documentation and verification as per Banks requirement.
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