A Home Loan is one of the best financing options when it comes to purchasing a property. Not only do you get to buy your dream home, but you can repay the loan amount at a comfortable pace. However, although a Home Loan makes the financing process easier, acquiring one can be a tough task. You have to shop around for financial institutions offering the lowest Home Loan interest rate so that you can save up on the EMI amount.
Apart from this, there are also a lot of other factors that banks and NBFCs consider before sanctioning your Home Loan. And if you don’t want to face rejection, you should know about this criteria before applying for the loan.
Here are some points that will help you understand the process adopted by financial institutions to sanction and disburse your Home Loan.
CIBIL is a credit information company that collects financial details of individuals from its partnered banks and NBFCs and uses it to generate a CIBIL or credit score. The figure usually ranges from 300 to 900, but a score of 750 or above is considered good.
Your CIBIL score is calculated on the basis of your past debt and repayment history and it helps banks and NBFCs assess your financial status. The credit score affects your Home Loan approval in a major way and you shouldn’t ignore it.
The best way to maintain a good credit score is to always pay your debts on time and not default unless you have a valid reason for doing so. Also, before applying for a Home Loan, clear all your outstanding loans to improve your credit rating.
Home Loan Eligibility
A CIBIL scores allows lender to understand your credibility as a borrower but they have other parameters to judge your loan eligibility. Financial institutions will ask you to submit your salary slips and state other sources of income, if any. They will also take into account your net expenses while assessing your loan eligibility. Generally, as a rule of thumb, your EMI amount shouldn’t exceed 50% of your monthly salary. If it does, chances are your loan application will be rejected.
In order to increase your Home Loan eligibility, you can ask an earning member from your family to become a co-borrower. When both of your net incomes will be combined, your Home Loan eligibility will increase. Also, before applying for the loan amount, you can use an eligibility calculator to ascertain the loan amount you’re entitled to receive. This will also give you a better understanding of your financial position.
While applying for a Home Loan, you need to submit a few documents for authentication purposes, some of which are listed below:
- You’ll need to submit an identity proof and it could be your driving licence, passport, voter’s ID card, ration card, or Aadhar card.
- For address proof, you can submit any of the identity proof documents. But, same lenders may ask you to also submit your telephone or gas bill.
- Date of birth proof
- Bank statements for the past six months
- Salary slips, and if you’re self-employed, you need to submit income statements for the past 3 months
Apart from these, your lender might also ask you to give some other KYC-compliant documents.
These are some of the primary things that a bank or an NBFC will check when you file your loan application. If all goes well, your loan will be sanctioned.
Let’s take a look at what the sanction and disbursement process entails.
What is a Sanction Letter?
A sanction letter is a formal document issued by your bank or NBFC, which states that the financial institution has accepted your loan application. However, even if you get a sanction letter, it doesn’t mean that your loan amount will be disbursed. There have been cases where a loan was rejected even after it was sanctioned. The reasons for doing so could be:
- The property you’re going to buy has a low value. So, even if you were eligible for a high loan amount, it’ll be reduced or rejected by your lender.
- The processing fee cheque bounced. This is the first payment you’ll make and if the cheque bounces, lenders will lose their trust in you.
- If you have provided misleading information about your financial status, your loan will be rejected. Remember, all financial institutions have loan officers who will do field visits to get a clear idea of your financial standing.
- Your builder has a history of delaying projects and fraudulent activities. Banks and NBFCs will run a check on the builder’s reputation too, so be careful when you’re selecting a housing project.
How will loan disbursement happen?
Once you have cleared all the criteria set by your financial institution, your loan amount will be disbursed. This will be done through cheques and you can transfer the amount to your savings account. Some banks and NBFCs may charge you a loan disbursement fee to cover the costs undertaken for sanctioning the loan to you. Also, depending on your requirement and the loan terms, you can opt for full, partial, or advanced disbursement of the loan amount.
Procuring an easy Home Loan can be a reality if all your documents are in place, you’re financially stable, and your CIBIL score is between 750 and 900. Once you’ve fulfilled these criterias, the financial institution will sanction your loan amount and disburse it as soon as possible.