Understanding the home loan process!

With the growing popularity of home loans as a means of financing the dream home almost all banks today are offering various kinds of home loans which can be easily availed by people looking to buy a home for themselves. The Reserve Bank of India has stipulated guidelines that need to be followed in application, approval and repayment of the home loan. The procedure for approval and disbursement of home loans is similar for most of the home finance institutions in India.

• Application form: This is the first step towards a home loan where the prospective buyer applies to the bank or other financing institution. These forms require some basic information regarding the income, personal status, cost of the house and other factors that determine repaying capacity. There is standard list of documents to support the information which has to be submitted along with the application form.
• Personal Negotiation: After having received your application the concerned authority at the bank will call the applicant for a face to face to discussion in order to understand the requirements and provide inputs to the customer. This is also an opportunity to bargain a better deal for the loan.
• Field verification: At this stage the bank verifies all the information provided by the applicant by sending a representative to check physically at the residence and place of employment of the applicant.
• Appraisal of Credit rating: Before giving the loan the bank will want to make sure about the repayment capacity and the credit rating of the applicant. This is done by investigating into the financial records of the individual and obtaining a credit report from CIBIL.
• Offer Letter: On approval of the loan to an individual in principle the bank sends an offer letter that includes loan amount, the rate of interest (Whether fixed or floating), tenure of repayment, general terms and conditions, mode of repayment and special features if any pertaining to that loan. The applicant has to send back an acceptance copy to the bank on receiving the offer letter.
• Property Valuation: After having approved the loan to the applicant the bank now gets on to the task of taking stock of the property being purchased. The bank verifies the legal angles associated with the property, the technical specification and market valuation in terms of cost projected by the applicant. This is usually done by the lawyers appointed by the bank for this purpose.
• Signing the Home Loan Agreement: Once the bank is satisfied with the credentials of the applicant and that of the property then the loan agreement is signed by the applicant and bank. The applicant has to provide post dated cheques for the EMIs for at least 12 months at this stage to the bank.
• Disbursement: After completion of the legal formalities the bank commences the disbursement of the loan amount either in a lump sum or in parts depending on the actual situation. The borrower can now make the payments accordingly and deposit the original documents of registration of the property with the bank.

If the required documents are readily available and the property papers are clear the entire process of home loan can take place within a very short time.