Food, Clothes, and Shelter are the most important lifelines for happy living. The whole fight of every person’s life can be dedicated to the above three things.
Though shelter is counted as the last priority in the above list, the importance of a home cannot be denied. Most people stay in a rented house and build their savings to retire with their own house ultimately.
The real estate cost in India is increasing daily, and most times, your provident fund money or your savings cannot be sufficient to buy or build your own house.
In such cases, most people rely on banks for home loans. All the major banks in India provide home loans at a certain interest rate for a specific period.
There are many processes that you have to follow to avail of a home loan from your bank. Most people get confused between home loan sanction and disbursement amount.
In this blog, you will get crystal clear clarity on the above topics as they are a part of the home loan procedure.
What is a Sanction?
When you apply for a home loan from a specific bank, you will have to provide all the necessary documents asked by the bank.
As your documents are processed, the bank will check for your eligibility for a home loan and decide on giving you a home loan of a certain amount.
Once you are eligible according to the bank criteria, you will receive a Sanction Letter from the bank.
The Sanction Letter doesn’t mean that the bank will immediately provide you with money. It just means you can get a home loan from a specific bank.
Other processes must be followed to disburse the home loan amount you applied for finally.
Hence, Home Loan Sanction means that the bank will see a letter saying they will disburse you the home loan amount after other processes. It does not mean that you will receive your home loan amount instantly.
Your Home loan Sanction Letter contains the following content:
- Your sanctioned amount.
- The Home Loan Tenure.
- Your Home Loan Repayment mode.
- The interest rate on your Home Loan.
- The type of interest rate- fixed or floating.
- Special schemes, if any, depend on your lender.
- Your Tax benefits.
- Home loan sanction letter validity.
- Home loan EMIs and Pre-EMIs, if applicable.
- Home loan processing fees and a list of other charges.
- Pre & part payment/ foreclosure conditions & charges, if applicable.
- The terms and conditions of your lender.
You must read all the above details thoroughly. Only if you agree with everything, you must accept and sign the Home Loan Sanction Letter to proceed further with the disbursement of your Home Loan Amount.
You must ensure to sign the Home Loan Sanction Letter within the validity period. Otherwise, you may have to go through the whole process again.
What is a Disbursement?
After you receive a sanction letter from the bank that you are eligible for a home loan. The bank will run different processes to decide how to provide you with the loan amount.
The bank can process the home loan amount to your account either in parts or completely. The processing of your home loan amount to your bank account is called Disbursement.
Disbursement amount can be of types depending on the modes of Processing:
1. Full Disbursement
- A full disbursement refers to the system where the bank processes the entire home loan amount at once to your bank account.
- It is a type of disbursement when purchasing a finished home from a builder.
- In this disbursement, the bank will give a cheque for the home loan amount in the builder’s name.
2. Partial Disbursement
- A partial disbursement refers to the system where the banks process your home loan amount in stages.
- It is a type of disbursement facility which is given when you purchase an under-construction apartment or building.
- You will receive the disbursement amount depending on the stage of construction.
What are the different Disbursement Stages of a Home Loan?
The Home Loan Disbursement stages include the following,
1. Legal and Technical Inspection of the Property.
- After your sign the sanction letter, the bank will do a physical verification of the property you are buying.
- It will also verify the age and market value of the building.
- The bank will also check for any legal issues related to your property to prevent future problems.
2. Original Property Papers.
- After checking for technical and legal aspects of your property, the bank will ask for original property papers.
- With the original papers, the bank will verify the accuracy of the documents.
- It will also decide on the disbursement facility depending on a resale property, under-construction property, etc.
3. PSD conditions fulfillment.
- PSD conditions are special conditions put forward by lenders in the Home Loan Sanction Letter to disburse the amount.
- You must fulfill the PSD conditions mentioned in the sanction letter to disburse the home loan.
- PSD Conditions include compulsory account opening, maintaining fixed deposits with the lender banks, loan closure letters, etc.
4. Down Payment for Property Purchase.
- The disbursement amount will be processed only when you confirm your down payment.
- When you buy a property, you have to pay a down payment between 10-25%.
- After the confirmation, bank your disburse your Home Loan Amount.
When is Home Loan Sanctioned but not Disbursed?
There can be situations when your home loan will be sanctioned, but it will not be disbursed, let’s see why?
- Due to the delay in finalizing the property.
- The lender blacklists the location of your property.
- The property deal is postponed or canceled.
- If you get a better home loan, deal with other lenders.
- If you have a higher home loan requirement.
- The property has legal issues.
- The builder of the property is blacklisted by the lender.
- If your property has a low valuation.
- If the property papers are missing.
- If you did not fulfill PSD conditions on the sanction letter.
- If your processing fees cheque bounced.
Now you would have understood the difference between sanction and disbursement. You would have known better about how to turn your Sanction Letter in favor of your disbursement amount.