When individuals apply for a home loan, the initial step includes completing paperwork for their lender. As the home loan amount is typically significant, this process can become tiresome. A crucial aspect of this procedure is a loan sanction letter through which a lending institution confirms a borrower’s loan approval. So, it becomes essential for home loan applicants to be aware of the details of this sanction letter and its significance.
What are some common contents of a loan sanction letter?
A home loan sanction letter contains vital information about the loan agreement. This includes details such as the sanctioned loan amount, interest rate, loan tenor, and more. While the specific contents may vary among lenders, they typically include:
- Borrower and lender details
Both the borrower’s and lender’s name and address are included in this letter.
- Loan amount
It specifies the amount of a sanctioned loan, including any associated processing fees or charges.
- Interest rate
The sanction letter specifies whether the loan which an individual wants has a fixed or floating interest rate and states the applicable interest rate.
- Loan tenor
It outlines the home loan tenor that varies based on factors like a borrower’s repayment capacity.
- Repayment schedule
It includes details about repayment, including payment frequency, amount, and due dates.
- Prepayment and foreclosure charges
Any fees or penalties imposed are also mentioned if a borrower decides to prepay or foreclose the loan.
- Security or collateral
It contains information about the property or assets offered by a borrower to their lender as security for the loan.
- Validity period
The timeframe within which a borrower can utilise their sanctioned loan typically lasts between 3 to 6 months.
- Other terms and conditions
Additional agreements between the borrower and lender, such as insurance requirements, processing fees, and late payment charges, are also mentioned.
Why is a loan sanction letter important?
A loan sanction letter from a lending institution holds importance for several reasons:
- Aids in making informed loan decisions
By providing comprehensive details about the borrower’s home loan, a sanction letter enables individuals to understand their future financial commitments. It allows them to make well-informed decisions regarding foreclosure, home loan balance transfer, prepayment etc. by referring to the terms and conditions present.
- Serves as evidence of loan agreement
A home loan sanction letter acts as tangible proof of an agreement between the borrower and the lender. Consequently, it can be used to challenge a lender if they deviate from the pre-established terms and conditions of the home loan in the future.
How to apply for a housing loan?
Below are the steps to apply for a home loan:
- Visit the official website of the financial institution.
- Move to the home loan application form.
- Enter the necessary details and upload essential documents
- Review the details and click on the ‘Submit’ button.
What are the housing loan eligibility criteria?
An individual should meet the following housing loan eligibility criteria while applying for one:
- If the individual is a salaried employee, they must be between 23 and 65 years old to avail home loan.
- If the individual is a self-employed professional they should be between 23 to 75 years old to avail home loan.
- The CIBIL score for a home loan for the applicant must be 725 or above.
- The borrower must be a citizen of India.
What documents are required to avail a home loan?
Here are some crucial documents one needs to provide for availing a housing loan:
- An individual must provide KYC documents like an Aadhaar card, PAN card, etc.
- If employed, they should present salary
- for the past few months.
- Self-employed individuals must provide their company’s balance sheet and income tax return documents.
- Recent bank account statements are also required.
- Any additional documents as specified by the lender.
Many lending institutions provide pre-approved loan offers to their current customers. It is determined by a borrower’s credibility. These offers apply to various loan types such as home loans and loans against property. Individuals can access these offers by entering their names and other details on the lender’s website.
A loan sanction letter holds considerable importance in the home-buying journey. It gives borrowers financial clarity and helps lenders assess risk. Additionally, both parties must understand the meaning and significance of this letter to navigate the home loan process confidently.