The home loan portfolio in India witnessed a growth of almost 32% and 15% in origination by value and volume, respectively, from FY17 to FY21. It shows the increasing demand for this credit, thanks to affordable interest rates, lenient eligibility criteria, longer tenor and likes.
However, it is crucial for intending borrowers to know how a home loan works before applying. It helps them estimate the time required to complete the process and the steps involved.
Step-wise guide on how a home loan works
Irrespective of the credit amount, following are steps through which a home loan is processed in India.
Step 1: Application
Individuals can apply for a home loan both online and offline. However, to expedite this process, individuals can opt for online applications. All they have to do is fill up an online home loan application form with the necessary documents and wait for further communication from lender’s end.
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Step 2: Collection of documents how a home loan works
In the next step, individuals need to submit a list of documents to lenders. It includes the following:
- Papers of property to be mortgaged
- Identity proof
- Address proof
- Bank account details
- Current salary slips or Form 16 (Salaried individuals)
- Proof of business ownership (self-employed individuals)
Besides, lenders may ask for additional documents as and when required.
Step 3: Documents verification
During this step, lenders check and authenticate the documents submitted. In this stage, lenders also check the credit score and credit history of applicants. Hence, it is better to maintain a high credit score and check other home loan eligibility criteria for smooth loan processing.
However, existing borrowers can avoid lengthy documentation by checking pre-approved offers. Selected financial institutions extend these offers to expedite and simplify loan processing. Besides home loans, these are also available on loan against property. Enter your name and contact number to check your pre-approved offer online.
Note that lenders go on to the next step only if the credit profile of applicants matches their criteria.
Step 4: Get sanction letter
Once the loan is approved, lenders offer a sanction letter to eligible lenders. This letter includes the following information:
- Loan principal
- Applicable interest rate
- Type of interest rates (fixed or floating)
A sanction letter may also include terms and conditions, home loan policies, etc. Applicants need to sign it and send it back to lender.
Step 5: Payment of applicable fees
After accepting the sanction letter, individuals need to pay one-time secure fees. However, in some cases, lenders may ask them to pay the fees before.
Step 6: Legal and technical check
Lenders also initiate a legal and technical checking before disbursing the loan amount. They send representatives to the property site for inspection.
Step 7: Agreement and loan disbursal
Following the steps, lenders offer a final agreement paper and after signing of that agreement, they disburse the home loan amount.
However, individuals also need to curate a solid repayment plan that helps them clear the debt faster. In this regard, they can resort to an online home loan EMI calculator and adjust the tenor to decide a feasible monthly instalment.
Similarly, applicants should also check the lender-specific home loan eligibility criteria to get faster approval. Following are the common home loan eligibility criteria that individuals need to consider:
- Must be residing citizens of India
- Age should range from 23 to 62 years (salaried) and 25 to 70 years (self-employed)
- Salaried individuals must have a work experience of at least 3 years
- The self-employed individuals must have a business with continuity of at least 5 years
Besides, the stability of employment also determines the eligibility for a home loan. Individuals can use a home loan eligibility calculator to know the maximum loan eligibility.
Once individuals know how a home loan works, it will be easier for them to apply accordingly. Note that individuals can also avail tax benefits on home loans under sections 24(B) and 80(C).