In this blog we would understand what the loan is & what kind of loans available in the banks & other financial institutions like NBFCs.

What is a Loan?

 A loan is a form of debt (Karcha or required amount for expense) incurred by an individual or other entity. The lender—usually a corporation, financial institution (Banks), or government—advances a sum of money to the borrower. In return, the borrower agrees to a certain set of terms including any finance charges, interest, repayment date, and other conditions. Here we also understand the loan process.

Types of Loans available:

• Home Loan
• Personal Loan
• Vehicle Loan
• Loan against Securities
• Loan Against Gold
• Small Business Loan
• SME Loans

& Now since the technology has evolved so much the feasibility of availing a loan has become very transparent and can be availed easily if a person he/she is eligible. Depending on the requirement of an Individual a loan can be availed from the above mentioned institutions or corporations. A person while availing a long must know the terms & conditions of the loan and charges if any. Although the same would be mentioned in the mandatory set of documents one should be careful enough before signing  any kind of document.

‘Home’ brings to mind comfort, joy, pride and family time. Every homeowner will tell you that her home gives her a sense of identity and its ownership is sacrosanct; this is one asset she would never trade for anything in the world.

To experience this sense of ownership, pride and joy, now would be a good time to plan your home purchase. Becoming a homeowner needn’t be hard on your pocket. You can Apply for Home Loan and bring alive your dream of owning a home. There are numerous benefits of availing a home loan; you get tax benefits on interest paid and loan amount repaid; with a Home Loan Apply to achieve homeownership today instead of in future; the home loan provider assists you in terms of assessing the builder’s credibility and track record and the legal documents pertaining to the building. But before applying for it, understand the loan process for different financial institutions.

In addition to these benefits, there are 3 key benefits of becoming a homeowner in present times:

1. Low property prices: Now homebuyers have multiple options in the affordable home segment. This has a two-pronged benefit for a home buyer – on one end, she can afford a larger home or purchase a home for a lower amount than she had budgeted. On the other hand, she can enjoy other benefits of buying a home with a home loan such as tax benefits, paying a small amount as down payment and using a home loan to pay the rest, longer loan repayment tenure of up to 30 years etc. It is always good to understand the loan process before applying for one.
2. Reduction in GST rates on home purchase: GST (Goods and Services Tax) rates on home purchase have been reduced significantly. Currently, the GST rate levied on purchase of residential homes is 5 percent (1 percent for affordable homes) without the benefit of input tax credit (ITC). Purchasing a home today will give you the benefit of these low rates.
3. Low interest rates: Home loans have become very affordable today with interest rates moving downward in the recent past. Lower interest rates result in lower EMI amounts which makes home loans more attractive and affordable. The key benefit of a home loan is that you can become a homeowner today and you needn’t wait to accumulate sufficient capital to make your home purchase. Also, thanks to the hassle free loan process. Additionally, your home loan repayment tenure can extend up to 30 years depending on your loan  eligibility  and other norms of the home loan provider (the longer your loan tenure, lower is the EMI amount). This gives you the comfort of repayment over a long period without putting pressure on your finances. While you may be convinced about the need to consider becoming a homeowner today, you may wonder how to go about availing a home loan, which is one of the first steps to your home purchase. One of the simplest ways to avail a Home Loan, Apply Online. When you apply online you can make your application with a few simple steps.

4. Tax Benefits: Another important thing to consider is- Personal loans do not offer tax benefits. Home loans allow you a deduction of up to ₹ 1.5 lakh per towards repayment of principal and up to ₹ 2 lakh on the interest repayment. Moreover, these tax benefits can be availed for the entire home loan tenure. Availability of these tax benefits not only reduces the income tax liability but also makes the repayment affordable. So, while closing your loans you should always consider the tax benefits associated with the loan. 

Source: https://www.hdfc.com/blog/benefits-applying-home-loan-present-times

It is advised that one should have a good CIBIL score before applying to any kind of Loan. CIBIL is a credit rating agency where it would assess  you in a score ranging from 300 – 900 depending on the payments you had done for the loans you have taken. Below Image illustrates the scoring according to CIBIL.

CIBIL Score Illustration

Loan Process Application post applying: Once you have applied for the loan by submitting the set of documents which institution had asked for, there is process which takes 15-20 working days to come on decision to whether the file can be moved to sanction (Not to be assumed as disbursement) Here, we are going to know the step by step process of LAP (Loan Application Process) typically followed by all the banks in general.

Loan Process : Pay the Processing Fee: At the first Individual has to pay the processing fee for a bank to proceed, it also typically is satisfied with the profile and would want to proceed further.

Valuation of the Documents: Keep in mind that millions of people apply for home loans on a daily basis and to ensure that the bank approves the paperwork as soon as possible, the applicant has to be genuine in the entire procedure.

Any fake document or fraudulent activity is unacceptable by the bank. It is a criminal offence and can lead to bigger troubles. As soon as the application form & documents are submitted, and the processing fee is paid. Public has the misconception that a Loan process with a bank is more paperwork, since the technology has evolved such that it is more easy & transparent.

The bank authority then evaluates them.

1. Residential address (previous and current)
2. Place where he/she is employed
3. Credentials of the employer
4. Workplace contact number
5. Residence contact number

The Sanction/Approval for Loan Process: The approval or sanction part is one of the most crucial stages of a home loan process. This can either have a fruitful result or can be rejected. It all comes down to the bank. If it is not satisfied with any of the documents provided by the applicant, the probability of approval turns less. However, if everything goes well, the loan will be sanctioned or approved in no time.

A bank usually deep-checks the applicant’s following documents to approve a home loan:

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

Based on the information mentioned above, the bank finalises and communicates the maximum loan amount the applicant can receive. Finally, this proceeds with an official sanction letter. It can be either unconditional or can contain a few policies, which has to be fulfilled by the applicant before the disbursal.

Processing the Offer Letter: As soon as the loan is sanctioned or approved, the bank then sends a certified offer letter, which mentions the following details:

1. The loan amount that is being sanctioned for the loan process being made.
2. The interest rate on the total loan amount.
3. Whether the interest rate is variable or fixed.
4. The loan’s tenure details.
5. The mode of loan repayments.
6. Terms, policies, and conditions of the home loan.

The Acceptance Copy

Once the applicant agrees to the offer letter, he or she has to sign a duplicate copy of the offer letter, which is for the bank’s records. Years back, this usually came with a specific administrative fee. However, it is no longer practised.

Processing The Property Papers Followed By A Legal Check: Once the offer letter is officially accepted by the applicant, the bank next concentrates on the home property he/she intends to purchase. Even if it is not finalised, the applicant can request for time duration to select one.

Once the property is selected, the applicant has to:

Submit all the original property documents to the bank. It remains with them until the loan is repaid. Also, this serves as the security towards the home loan the applicant has applied for.

The original property papers will normally include the following details:

1. The name of the seller.
2. The identification and address proofs of the seller.
3. The name of the property.
4. The address of the property.
5. The chain of written documents if the seller isn’t the primary or actual owner.
6. NOC (No Objection Certificate) from the primary legal owner (if any).
7. NOC from the statutory development board representative & cooperative housing society.
8. If the land is already on a lease, the bank will require a NOC from the lessor as well.

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

Legal Check: Once the property papers are submitted, the bank then validates them for authentication. This process is termed as “legal check.” In fact, the sale papers between the applicant and the seller are verified.

These original documents are sent to the bank’s lawyer for an in-depth check. Only when the lawyer approves all the submitted documents as clear, then everything related to the home loan is good. If not, the applicant will be asked to submit a few more documents for verification.

Processing A Technical Check & The Site Estimation:  Every bank is highly cautious with the loan it lends and the home property it plans 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.

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

The visit to the “site property” is basically conducted for verifying the details given below:

1. The stage in which the construction is.
2. Quality of the construction.
3. Work progression.
4. The time required to build the house.
5. The layout of the house and whether the governing authority has permitted it or not.
6. If the builder has valid requisite certificates for construction on the land.
7. Property valuation and the environmental areas.

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

1. The building’s age.
2. The internal or external property maintenance.
3. The loan tenure and if the building falls within the applicant’s loan eligibility criteria.
4. The quality of the construction.
5. The surrounding area.
6. The valid requisite certificates to hand over the flat/house’s possession to the buyer.
7. The existing mortgage on the home property.
8. The property valuation.

The building’s approval plans, following the government laws, etc.

Note: A bank conducts a proper technical check to understand the construction progress and to gain the trust of the applicant. This is an important phase of the home loan process and hence, cannot be skipped by the applicant.

Also bear in mind that there will be a fee for this technical check, which may be either charged separately or might be taken from the upfront fee.

The Site’s Value Estimation: Once the expert completes the technical inspection of the site, it is then followed by determining and checking the property’s overall value. This is basically done because of the increasing malpractices. There have been multiple cases where the applicants have shown property purchases from the associated entities at extremely inflated rates just to acquire cheap loans.

Thus, the risk for a bank to lend the money to his/her applicant has become high. However, a site’s estimation can help the bank to determine the total loan amount so that the sanction is straightforward.

Note: A few banks charge an extra fee for the estimation check as well. It is covered either by the upfront amount or the applicant might be asked to pay separately.

The Final Loan Deal: Once the technical and site’s estimation is done by the bank, and the lawyer clears all the paperwork, the next step is the final registration of the deal. The lawyer of the bank finalises the loan documents, drafts them, and has them stamped as well as signed.

Signing The Loan Agreement: After the paperwork is complete, the applicant has to sign the agreement of the home loan. He/she has to submit the cheques (post-dated) for the initial 36 months or the duration both the parties have agreed upon.

After this, the original property papers have to be handed to the bank.  This is for the bank’s security, safety, and proof.

This stage is known as the MOE (Memorandum of Execution) and has a stamp duty based on the state the applicant applies at. This duty is paid by the applicant.

The Loan Disbursal: Once the applicant signs the papers and everything is legally clear, the loan amount is given via cheque. However, prior to this, the applicant has to submit a few essential documents to the bank, as these will serve as his/her personal contribution to the home property.

If the applicant is trying to source some more funds from outside, then the pieces of evidence have to be submitted as well. Only then, the bank releases the loan’s part-disbursement. The cheque is always under either the seller or development/society authority or builder.

Nevertheless, there can be a few exceptional cases too. Say, for instance, the applicant has made an excess payment from his/her own account, and then the cheque is handed to him/her directly from the bank.

Note: Make sure not to delay the house loan process after approval because every day counts here. The moment the loan is sanctioned, the interest rates are charged from that day onwards. So, every single day costs! Hence, ensure that the cheque is taken on the mentioned delivery date. Avoid paying additional interests.

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