Month: April 2011

Bifurcated Home Loan Process

Mr. Rahul a corporate employee has forgot to check the Home Loan sanction letter of the bank before signing it, as a result of which he is paying 0.5% of additional interest on his home loan account. This is a very common mistake that many customers do while taking a home loan. Customers blindly trust the home loan service provider and sign the documents with out reading it which is not suggestible to as a Home Loan is a Long Term (Life Time) contract with the bank.

To educate all the customers who are going for Home Loan we are giving some key points where the customer need to be careful to have this Long term contract a stress free one.

Application and Documents: The most important and key stages of the home loans process where the customer signs and provides the service provider with the income and legal documents of the property for approval.

All the customers are suggested to give only the appropriate information regarding your Employment, assets and Insurance. It is not suggestible to give the information which misleads the bank as the bank verifies the information given by you in the application. Any discrepancy in the information provided will lead in rejection of your application. Submit all the documents and receipts of credit card settlements if any, this will make your application clear and increases the chances of approval.

Read the Terms and Conditions of the bank state overleaf before signing it as banks do mention about the details of refundable and Non- refundable processing fees and other details.

Process: The second stage is the Home Loan Process where banks will verify the income details, legal and technical details of the property.

a. Personal Verification: Banks will verify the details mentioned in the application form by the customer and send their representatives to residence and offices to verify the details and employment of the customer personally.

If in any case the customers in not available for verification then banks do send mails to the HR of the company to conform the employment of the customer before giving any approval on the income basis.

b. Eligibility Process: After the completion of personal verification to the residence and office banks will process the eligibility by taking the customer(s) income into consideration. Some banks consider Net Earnings and some gross earning to calculate the eligibility. It is always suggested to go for a less amount of loan compare to the property cost to be flexible in paying the EMI’s.

Banks can ask for supporting documents of additional income if has like rental income for which customers need to submit the rental deeds and the banks statements reflecting rents being credited.

c. Legal Verification: The second stage of the processing where banks verify the legality of the property with the panel advocates with the documents given by the customer. Banks reserve the right to ask for additional documents if needed to certify the legality of the property before giving legal approval over that property.

Banks certification of the legality of the property will not certify the property completely. If any legal discrepancies arises in future over the property purchased by the customer with the bank loan, the customer have to fight against the legal hassles on his own and continues paying the EMI with out fail.

d. Technical Evaluation: The property for which home loan was applied will be evaluated by the panel valuators in terms of the Constructed Areas, Plot areas, Market value, Horizontal and vertical deviations etc.,

Banks reserve the right to ask for additional documents if needed to clear the valuation for the property.

Sanction: After successful completion of the Personal verifications, Eligibility process, Legal and technical verifications banks will provide sanction letter of the loan applied by the customer. The sanction letter states the applicable Rate of Interest (ROI), Tenure, Processing and prepayment charges etc., revision of interest rates of the loan applied.

If any additional conditions are there, those will be mentioned under sanction conditions column. All the customers are suggested to go through the sanction letter thoroughly in regard of the ROI, Tenure and the fees committed by the service provider, if any discrepancy is noticed please demand the banker to change those before signing it.

Funding and Disbursement: Last but not the least is the Disbursement. Customer need to sign Home Loan Disbursement Agreement in which banks will state all its terms and conditions of the loan like repayment, covenants and customers responsibilities etc.,

All the customers are suggested to read the agreement once completely before signing it.

Funding of the loan will vary from product to product. Banks do provide maximum funding over any property but it should be limited to lesser amount for EMI payment, part payment and pre payment flexibility.

Banks will fund on the basis of Technical value, agreement value or the sanctioned amount whichever is less.

Banks charge Pre – EMI (Interest component of the amount disbursed) if the duration between the loan disbursement and the EMI date is below 30 days or in the case where the loan is completely not disbursed.

Effects of Interest rate on Home loan account

Gaining good knowledge about the interest rate will benefit the customers in choosing a right product applicable to their need and choosing a right interest rate is the typical thing in the home loan processing also. A customer has to be very careful before going for a home loan. The interest rate is applicable for the whole repayment period which you are opting for and it will vary when the bank changes the Base and BPLR rates according to the markets. Compare the rates with the other banks and ask whether the interest rate is calculated on daily basis or monthly basis. Please take care of the below steps before taking a home loan.

  1. Whether the rate of interest is Floating or Fixed.
  2. If it is Fixed then it is fixed for the whole tenure of it can be changed.
  3. If the Rate of Interest is floating then at what period of intervals’ the ROI will be changed.
  4. If the ROI changed then the EMI will increase or the Tenure.
  5. If part payment made then how the rate changes on your account.
  6. Will you be notified if any rate change occurs on your account?

Usually when a customer makes part payments in to his/her account the bank will deduct the amount paid directly from the principle and calculate the interest on the remaining amount only by keeping the EMI constant.

Banks usually increase the tenure when there is a change in the Rate of Interest (ROI). If the tenure crosses a period of 300 months then the banks increase the EMI. The floating rate is completely market dependent, and the customer should be aware of the clause in the Fixed rate that the bank can change the rate if there is any huge changes in money market conditions. Customers are always suggested to make part payments to the loan account to reduce the interest amount that is to be paid on home loan.

Banks will different types of offers to save the interest paid on the loan account like “ Home loan interest saver” in which customer needs to open a saving account with the funding bank and the interest earned on the amount deposited in the account will be reduced from your home loan interest.

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