Tag: home loan process

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.

10 Steps to peaceful Home loan processing

Building a home of our dream is a life time achievement to a middle class person. For making this dream come true to a middle class person banks are playing a significant role by providing them with the right home loans at door steps. But if do not plan properly and if we are not aware of the policies, terms and conditions of the bank we will end up paying more to the bank in terms of principal and interest components.

For the convenience of our customers we planned to give a 10 steps plan which the customer has to understand to take a home loan to build a dream home of their life.

Please read these 10 steps of processing carefully and follow these to make the transaction a memorable moment in your life.

1. Understand your product

Before going for a home loan processing please be aware of your loan product and the terms and conditions that the Bank is asking to fulfill to have the loan done. There are different products for which bank is having different terms and conditions for each product. Normally the Bank will have the below products which come under home loans.

a. New Purchase of Flat or Independent House: In this a customer can purchase a New Flat or Independent house of his choice which is under construction or in ready to occupy position.

b. Resale purchase: This product is applicable to those customers who wants to go for a Flat or Independent house which was already owned by some body else.

C. Plot + Construction: The product is applicable to those customers who want to buy a Plot and do the construction immediately, but banks ask you to start the construction with in the specific period of time.

d. Balance Transfer (BT): A person who wants to transfer a loan from one Bank/Financial Institution to other can opt for this product.

e. Construction: A person who wants to construct a house in his/her plot can go for this loan.

f. Plot: A customer can go for this loan who wants to purchase a Plot which is under HUDA, Municipality and Grampanchayat limits.

g. Enhancement: Increasing the loan amount which was already taken from the same bank is called enhancement.

h. Top – Up: This loan is just a facility that banks provide to customers to take on the basis of the previous loan and the repayment track.

I. Mortgage: It is the loan that a customer can opt by depositing the original property documents with the bank which he already owns.

2. Rate of Interest (ROI): The most important point to be taken care of in taking a home loan. There are two types of interest rates which banks normally have i.e Floating and Fixed.

Floating Rate of interest is subject to change according to the money market conditions. If the interest rate increases then the bank will increase the Rata of Interest on your loan vice versa.

Fixed Rate of Interest is fixed for the complete tenure of for over a period of time depending on the Banks, but Banks reserve the right to modify the rate of interest if they is any huge differences in the money market conditions.

Taking clear clarifications is suggestible to the customers about the fixed rate of interest if it is fixed for the whole tenure or not in spite of any differences in money market conditions.

3. Tenure or repayment period: A customer can choose the tenure of his own. Usually banks offer a min and max tenure of 1 to 25 years to home loans, and 1 to 15 years to mortgage loans.

Choose tenure of your own for flexible repayments of your loan by keeping all your income and liabilities in mind. It is always advised to choose less tenure to save the interest part on the Home Loan.

4. Eligibility and sanction process: By taking the Fixed and variable income into consideration banks will calculate the eligibility and the sanction will be given upon all the verifications being positive which the customer have specified in the application form. It is suggested to give useful and applicable information only.

Banks reserves the right to sanction or reject the application if they find any information that you have given is misleading.

Once you receive the sanction letter please read it carefully for the conditions of Interest rate revisions, Sanction conditions, Pre-closure charges, Processing fees and terms and conditions of the bank for availing the loan before signing it.

5. Legal documents and scrutiny: The customer is required to submit all the legal documents to the bank of the property which he is buying. The customer should ask the vendor to give all the link documents, Lay out, and plan copies along with his/her ownership documents.

It is to be taken care that if there is any legal disputes on the property then the proceeding and judgement copies are also required.

The customer should verify the legality of the property with a legal advisor because after clearing with the process of the bank if any legal issue raises in future the customer has to pay the loan and the bank do not take any responsibility about the legality of the property.

It is suggested to verify the legality of those pre approved ventures of the Bank for the safety purpose.

6. Technical evaluation: Banks evaluate the value of the property with their panel valuer and the value is final. The customers should take all security measures against the deviations like Horizontal and vertical which will affect the processing and the future transactions also. If any deviations are there with the property then you should ask the vendor for the copies of regularisation. The property should have the necessary permissions or documents to regularise the deviations according to Building regularisation scheme (BRS).

Please check all the details like Plot area, sanction area, Plot No and the Municipal Approved Plan Valid dates before going for a processing.

7. Home Loan Agreement: It is the Agreement which a customer has to sign before going for disbursement of the loan which he requested to the bank to fund on the property. Please read the document carefully before signing it as it is a long term contract between the customer and the Bank. Once you sign the document it can’t be altered or modified until and unless you repay the loan in all respects.

8. Registration: The most vital part of the Home Loan processing ends with the registration of the dream property for which you availed the loan. Please take care of the points typed in the Sale Deed documents which give you the ownership of the property and any small mistake in that leads to bigger controversies. So please read the Sale Deed documents before submitting it for the registration process.

The vendee should collect all the link documents, Plan copies and tax Paid receipts from the vendor at the time of registration only.

9. Processing, pre-payment and foreclosure charges: The customers have to pay the processing charges to the bank for the loan availed.

Depending on the banks some charge a max of 2% along with service tax for making part payments towards your home loan account and some do not charge for these payments, but there is a limit for making these part payments over a financial period.

The customer should know about the additional charges which bank will make in cases of pre payments and foreclosures. A customer needs to pay a max of 4 % of the outstanding principle along with service tax towards the foreclosure charges of the loan.

10. Tax exemption: Apart from giving the joy of a own house the home loan gives Tax exemption on the principal and interest paid over a financial period.

The Customer can get a tax benefit of Rs. 1,00,000/- maximum under section 80C of Income Tax act 1965. In addition to this you will get tax benefit of Rs. 20,000/- maximum on the principal amount repaid during a financial year under the section 88 of the principle repayment of the loan.

A customer can claim tax exemption for the amount paid as stamp duty during the registration process. The Bank will provide you with the provisional certificates to claim the tax exemption from the income Tax department. The loans which do not have tax exemptions are top-up, plot and Mortgage loans.

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