Home Loan
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Process of Buying a Home Loan.
Home Loan Process
How It Works
1) Pre-Qualification Process
This is the first step in the Loan origination process. At this stage, the potential borrower will receive a list of items they need to submit to the lender to get a loan.
3) Application Processing
At this stage, the application is received by the credit department and the first step done by the department is to review it for accuracy, genuine & Completeness.
2) Loan
Application
Borrower completes the loan application. Sometimes the application can be paper-based, but today lenders are shifting towards an electronic version like paperless.
4) Underwriting Process
When an application is totally completed, the underwriting process begins. Now Lender checks the application taking a variety of components into account:
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- Principal & Interest
Purchasing a Home Loan
Here is a quick step-by-step guide
Purchasing your dream house is one of the most important decisions you will make in your life. This is why you should conduct extensive research before entering into a long-term repayment agreement with a lender. Here is a simple step-by-step guide to obtaining a house loan – from the moment of application to the point of disbursement of the loan amount.
Step 1: Choose the property
Actually, There are two types of property available for purchase: ready-to-move and under-construction. The last phase, loan agreement, and loan disbursement differ differently in each circumstance. We'll speak about it when we get there. If you are not purchasing the property outright, you will need a house loan in the first step. So, finalize your property and get ready to shop for a loan.
Step 2: Completing the loan application
Homebuyers must submit a financing application once the property has been finalized. At this step, homebuyers should inquire about various offers, house loan interest rates, and paperwork necessary. You can also negotiate the processing cost with the bank at this point. You may begin a loan enquiry. You should begin comparing interest rates online for this purpose. This is the simplest approach to determine which bank will provide you the best and lowest home loan interest rate. All of the information is also available on Housing.com's dedicated home loan page. Following that, you may directly generate an inquiry with the bank by visiting the local bank branch or utilising the bank's website. You can negotiate the best available pricing during the inquiry. Many homebuyers are unaware that the interest rate on their mortgage may be negotiated. Banks might also offer you a favourable interest rate based on your strong credit score and income. So be informed and request it now, before it's too late. At this point, you should also be aware that there is an extra cost in the form of a processing charge, which can range from 1% to 1% of the loan amount. This is also negotiable, with most banks agreeing to a processing charge of 0.25-0.5 percent of the loan amount. You will also be charged a fee for the due diligence that the bank will perform on your behalf. It is possible that banks will reduce the processing price yet charge you a larger fee for due diligence. It is critical that you explain this early on in order to prevent spending more than your budget allows. The following phase is concerned with paperwork. Borrowers who are salaried or self-employed must produce various documentation to the bank in order for the bank to analyse the homebuyer's financial health. You can look through the list below. The following are some examples of frequent documents. You should keep these on hand in case you need to apply for a house loan. Keep in mind that you should only pay the processing charge to the bank that you believe offers the greatest interest rate.
Documents that are often used by both paid and self-employed individuals:
- Form for Loan Application
- Photographs in passport size
- PAN Card, Driving License, Passport, Voter ID Card, and other Identity Proof Documents
- Residence Proof, such as an energy, water, or telephone bill, ration card, or any other government-issued ID with your residence address.
- Copy of the last six months’ bank account statements/passbook entries
- Current bankers’ signature identification proof
- Personal Assets and Liabilities Statement
Step 3: Due diligence by the bank
Banks will not provide you a house loan until they have assessed your financial situation, repayment capabilities, legality of the property, and other information based on their field research. This is the stage at which the bank performs due diligence.
The bank examines your bank statements, savings, transactions, investments, business activities, credit and repayments, bank balance, and check bounces. Assume that your checks have bounced or been returned in the past; this might make you ineligible for a house loan. Your liabilities and debts are also scrutinised by the bank.
Following that, the bank examines your net income and credit score. A credit score of 750 or above shows good credit, and banks are typically prepared to give you a better (lower) interest rate.
Banks not only evaluate your financial health, but they also check your personal details through a field inquiry in which they check your residence address and contact information. A bank person may come to your house to validate such information. Please keep in mind that the type and industry of your profession have an influence on and decide whether you are qualified for a house loan. Sectors with a significant chance of employment loss or volatility, for example, are frequently seen as unfavourable. This is normally decided by the field representative.
The property you intend to purchase is also scrutinised. The bank examines the condition, quality, encroachments, and worth of the property. If the property is under construction, the progress, quality, building design, and layout are all closely scrutinised. This is the step of technical due diligence.
The following stage is legal due diligence. Documents pertaining to ownership and encumbrance are examined. Banks will not accept a house loan if there is no established ownership or if a third party has a claim on the property. This is also one of the reasons why obtaining a house loan is advantageous in a variety of ways. Banks look over the complete title deed, possession certificate, selling agreement, and so forth. It will assist you in making an educated selection. Even when a property is under development, banks research and evaluate land ownership, allocation letters, builder-buyer agreements, project approval paperwork, and so on.
Step 4: Calculate your creditworthiness and loan eligibility.
Once banks have determined that the property you are interested in is sound and free of legal issues, they will investigate your creditworthiness. Banks do this by reviewing your repayment history and looking for defaults. You may even be eligible for a larger loan amount if you have maintained a strong credit score throughout.
Banks determine your EMI repayment capability depending on your income and obligations, if any. Amit, for example, has a monthly salary of Rs 50,000 and a monthly vehicle loan payment of Rs 10,000. Amit has a monthly disposable income of Rs 40,000. Banks consider it favourable if your EMI does not exceed 50% of your discretionary income. In this situation, Amit may spend a maximum of Rs 20,000 monthly EMI, implying that the house loan sanctioned will be in the range of Rs 20-25 lakh. It is up to the individual bank to examine and determine your repayment ability. In summary, banks examine the Loan to Value ratio and do not approve loans that exceed 80-90 percent. It also considers your salary, age, firm, type of job, and other factors to determine your home loan eligibility.
Step 5: Accepting the offer letter
Following a series of checks, the bank gives you an offer letter including the final loan amount. If you sign, it is regarded formally accepted. The loan agreement can then be signed. Following that, the bank passes over the DD to the seller, and you are free to take possession of the property.
The offer letter clearly mentions the sanctioned loan amount, rate of interest- whether fixed or variable. Fixed interest rates are higher than variable but even fixed is not altogether a fixed rate, these could be floating rates as well and could be fixed for a certain period. It totally depends on you whether you choose, fixed and floating rate or variable. The offer letter also mentions the tenure, number of EMIs to be paid, mode of repayment whether post-dated cheques or electronic clearing; schemes availed such as PMAY or bank offers, validity, terms, and conditions, etc. You should sign the offer letter only if you are satisfied with the offer. Do remember to check the sanctioned amount.