If you are planning to buy a house, it is important to have a clear understanding of the home loan process, which is mainly classified into three stages – application, loan sanction and disbursal. The home loan sanction stage is an important one, as this is when the loan is approved or rejected. After the home loan application process starts, banks verify the applicant’s documents and decide to approve the loan, if the specified criteria are met. The lender will then issue a sanction letter. This document is proof that you are eligible for the loan amount.
What is a loan sanction letter?
A sanction letter is a document that is provided by the bank or lending institution to a borrower, stating that the home loan has been approved. It contains the terms and conditions based on which the loan will be provided.
The loan sanction letter includes vital details such as:
- Home loan amount.
- Applicable interest rate (fixed or floating).
- The base rate for interest calculation.
- Loan repayment tenure.
- Mode of loan repayment.
- EMI/ pre-EMI payment details.
- Validity of the loan sanction letter.
- Tax benefits.
- Special scheme (if applicable).
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What is the process of home loan sanction?
The approval of a home loan is a lengthy process. It starts after the borrower submits the loan application form along with the necessary documents. The bank or the housing finance company (HFC) then conducts a verification of the documents and other financial details of the applicant. Banks also assess the creditworthiness of the borrower through credit bureaus and evaluate the value of the property used as collateral. If the lender is satisfied, it provides the sanction letter, confirming that the loan has been approved.
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Generally, the home loan approval process can take around three to four weeks. However, a delay may happen, if there is any lack of information or insufficient document proofs. The loan may also be put on hold for these specified reasons.
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How is a sanction letter different from in-principle approval and disbursement letter?
In-principle approval refers to the process whereby the lender assesses the financial status of the applicant and gives an in-principle approval letter, guaranteeing that the lender will provide the loan, subject to successful verification of the documents. Generally, lenders provide in-principle approval letters for pre-approved home loans. They also charge a fee that is adjusted in the total loan processing charges. The validity ranges from three to six months, depending on the lender.
On the other hand, a sanction letter for home loan is a document stating that you have become eligible to avail of the specified loan amount. The terms and conditions mentioned in it remain valid till the date specified in the letter. The lending institution can offer the original terms applied or can change them depending on the applicant’s loan eligibility.
However, a sanction letter is not the legal approval of the loan and there are formalities to be completed till the loan is disbursed. Once the loan offer letter is accepted by the applicant, the lender proceeds to verify all the property papers that the applicant submits. The lender will keep these documents, as a security towards the home loan till the time the applicant repays the loan. The bank then conducts a legal and technical verification of the property that the applicant is planning to purchase. After this step, the legal representative of the lender finalises the loan documents and the final loan agreement is drafted, stamped and signed. The loan is then disbursed.
The disbursement letter contains the total loan amount paid by the lender. It may also include information about the home loan insurance amount, if applicable.
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Importance of home loan sanction letter
Home loan sanction letter sample format
Understanding the sanction letter format should be one of the first steps in the home loan process. The loan sanction letter format may vary, depending on the lender. Let us look at a home loan sanction letter sample.
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Documents required for the home loan sanction letter
The financial institution will ask for certain documents before issuing a sanction letter. These may include:
- Identity proof, such as Aadhaar card, passport or PAN card.
- Passport-sized photograph.
- Proof of residence.
- Recent six months’ bank statements.
- Recent three months’ salary certificates.
- Latest income tax return form.
- Property documents.
In addition, the applicant may have to provide various financial details and pay a processing fee.
What happens after you receive the loan sanction letter?
Upon receiving the home loan sanction letter, the bank/lender sends a certified offer letter mentioning important details of the home loan. The applicant is required to sign an acceptance copy and submit it to the financial institution. Thus, it is at this stage that one must thoroughly check the details given in the sanction letter and understand the terms and conditions.
Can a bank reject a home loan after a sanction letter?
Usually, a loan sanction letter is issued only after the lender approves the loan application. However, there may some scenarios such as legal issues with property, incomplete documentation, job instability, etc. where the lender may reject the loan application. The sanction letter is not a legally binding agreement.
What is a digital sanction letter?
Nowadays, the home loan application process has been simplified, with many banks and lending companies offering digital modes to apply for an e-home loan and get a digital home loan sanction letter. If you are opting for housing finance companies and top banks, like SBI and HDFC, getting home loan sanction letter is a hassle-free process. Also, you will be able to check your home loan application status online.
A digital sanction letter, as the name implies, is a digital form of the home loan approval document, which the bank/ lender issues, before sending the final home loan agreement.
Key points to remember about loan sanction letter
- Find out the home loan application procedure of the financial institution, before applying for a home loan. This will make the process easier for you.
- The applicant should know that the amount of loan sanctioned can be lower than the loan amount that he/she applied for, depending on the credit history. For example, this can happen if the applicant has outstanding payments for other loans.
- Before signing the acceptance, the applicant should carefully check all details given in the document, including the interest rate.
- Additional documents, as required, must be provided before the validity of the sanction letter ends.
- Verify the details of the property you plan to purchase. Banks are likely to reject the loan application, if the property does not have a clear title or if there is a lack of approvals from the builder’s side
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If you are applying for a home loan, you must know the terms, such as the sanction letter and final loan agreement. It is important to understand that getting a sanction letter does not imply that the loan is approved. It basically means that you are eligible to get the loan amount. Further, make sure to go through the document carefully. Ensure that you accept the document within the specified period. In case you exceed this time period, the bank will not approve the application and you will have to reapply again.
FAQs
What is the validity of a home loan sanction letter?
Usually, a home loan sanction letter is valid for six months. The sanction letter will cease to be valid if the applicant does not avail of the loan during this period. In such a case, the borrower must go through the application process once again.
Can I cancel the home loan after approval?
If the applicant wants to cancel the loan offer, he can do so before the actual disbursement of the loan.
Can I get loan sanction letter online?
Most banks offer a digital sanction letter, which involves applying for an e-home loan.
How to download a loan sanction letter?
Most lenders provide the online facility to download loan sanction letters. For this, visit the internet banking portal of your bank and go to the loans section to download the sanction letter.
How to check my loan sanction status?
Most banks allow borrowers to check their loan status by accessing their internet banking portal. The status can be checked by accessing the loan section and clicking on the 'Track Application Status' link.
How to cancel loan after approval?
A borrower who wants to cancel a loan after it is approved should check the terms and conditions to know the cancellation fee or penalties. Then, they must notify the lender and send a formal written request stating the relevant details such as name, loan details and reason for cancellation.
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