Taking a home loan is a long process that involves a lot of paperwork and formalities. One needs to first conduct extensive research, check for home loan eligibility with multiple lenders, and use tools such as a home loan EMI calculator to know what they’re signing up for. One must also know about all the documents involved in the process, such as the home loan sanction letter.
What is a home loan sanction letter?
It is a document issued by the home loan lender or bank when one applies for a home loan. After applying, the lender verifies the borrower’s eligibility and documents. They also check the property’s market value and legal validity. Once all of this is done, they issue a sanction letter to the borrower.
Here are 5 important things to know and remember about this document.
5 things to know about a home loan sanction letter
- Significance of the letter
The sanction letter is a way of informing the borrower about the expected loan amount they’re eligible for, the proposed interest rate, loan tenure. It is essentially a document that informs the borrower of the lender’s willingness to finance them under certain conditions.
- It is based on the borrower’s home loan eligibility
Before sanctioning a loan, the lender checks the borrower’s credit score, credit history, personal details, outstanding payments, and all their documents. Along with this and the property’s current value and potential increase in value, leads the lender to decide the borrower’s home loan eligibility. Once the lender decides that a borrower is eligible, they will offer a home loan sanction letter mentioning the specific terms and conditions adjusted as per their eligibility.
- Contents of the letter
Each lender may have their own different format for a sanction letter. But most
sanction letters will have the following information:
- Total amount of loan sanctioned
- Base rate for calculating interest
- Interest type (fixed, floating and hybrid)
- Interest rate
- Repayment tenure
- Pre-EMI amount
- Equated monthly instalment or loan EMI amount
- Terms and conditions of the loan
- Validity period of the loan sanction letter
Based on these details, one can then check their EMI amount with a home loan EMI calculator. Once all of these details are acquired, one can decide whether to go ahead with the loan of browse for other offers. One can also choose to negotiate terms with the lender based on the above information and other information added by the lender.
- It is not the final loan agreement
A sanction letter is different from the final home loan agreement. There are background checks, additional documentation, and other formalities before the final agreement is reached. Plus, sanction letters have a fixed validity. Once this period is over, the borrower cannot accept the loan offer as per the terms mentioned in the letter. They will need a fresh application.
- A digital sanction letter is more convenient
Nowadays, some companies provide digital sanction letters as well. It has a lot of
benefits such as quick access and immediate availability. It can be downloaded within minutes online. Digital sanction letters can make the borrower’s process of comparing loan offers from different lenders quicker and easier. It also serves as an eligibility proof for submission while buying the house.
Home loan sanction letter FAQs
Here are some common questions about the nuances of home loan sanction letters, answered.
- What is a pre-sanction letter?
A pre-sanction letter is a document that a borrower might receive from a lender, that confirms the borrower’s eligibility for a pre-approved home loan.
- Are there extra charges for a digital sanction letter?
This depends on the lender. Usually, there is a nominal charge for downloading the digital sanction letter.
- What is the usual validity of a home loan sanction letter?
Although this can change from lender to lender, it is usually 6 months.
Conclusion
Before taking a home loan, it is very important for one to check all the required documents and criteria for eligibility. Using a home loan EMI calculator online has become the easiest way to get an exact idea of the costs involved. Acquiring sanction letters and comparing them is an essential measure too.
