Home Loan Process in India

I recently went through the process of taking a home loan from a private bank in India. Generally, the process is simple and straightforward, however, there are some important points in each stage of the process that will help any borrower going through this process. In this article, I will describe the home loan process followed by Indian banks along with some tips to help you make the process as smooth as possible.

Type of Bank

In India, you can take a home loan from a public or a private bank or an NBFC (Non-banking Financial Company). Many people prefer to go with public banks such as SBI or NBFCs such as LIC. It doesn’t matter who you go with. In general, all of them offer very competitive rates and decent service. However, it would be preferable to go only with large entities.

Salaried Vs Self-Employed

All home loan providers provide loans to both salaried as well as self-employed. However, self-employed people are generally offered a slightly higher interest rate compared to salaried people due to the perceived higher risk of default from the self-employed. Self-employed borrowers are also required to produce many more documents compared to the salaried borrowers (We’ve described these documents later in the article.

Pre-approved Projects

You can take a home loan for an under-construction project, a read-to-move apartment, or even an independent house. While taking a loan for an independent house, it’s okay to approach any bank of your choice. However, if you are purchasing an apartment, it really makes things easy to go with a bank that has the apartment project pre-approved. Each builder when they start a project get their project pre-approved by a number of banks. As a part of the pre-approval, a lot of legal and regulatory paperwork is completed. So, when you take loan for a pre-approved project, the legal verification and the site-level technical verification is already done and saves you time.

The Process

Step 1: Initiate Home Loan

The first step in the process is to apply for the loan. You can call up the bank or approach a branch near to you. Now-a-days all banks provide you at-home service. So, for all documentation, the bank personnel will come to your home and complete the process. In most cases, you don’t have to visit the bank branch at all. So, talk to the bank and fix an appointment for a convenient date and time. Before coming, someone from the bank will talk to you over phone to understand your requirements, will explain the process to you and the required documents. You can also ask the bank person to come to your home and discuss this. However, it is best that you understand the documents required over phone and collect all those documents before proceeding with the application. You can also discuss your salary/income with the bank employee so that he can give you a quick estimate of loan amount eligibility. Note that at this stage you need not have selected a property. You’re just applying for the home loan. Once you have applied and your loan is approved, each bank will give you a period of 3-6 months in which you need to select the property and get your loan disbursed.

Step 2: Collect All Documents

The next step is to collect all the necessary documents and keep their photocopy ready. Below is the list of documents required:

For Salaried Employees:

• Two photographs
• Identity, residence and age proof (Aadhar card, PAN Card, Driving Licence, Passport)
• Last 6 months bank statements
• Last 3 months salary slips
• A cheque for the processing fees
• Last 3 years Form 16 / Income Tax Returns

Note that if you are taking a joint loan, you will need to submit all these documents for each co-applicant. In case of joint loan, you also need to provide a relationship proof such as Passport, Marriage Certificate, Voter Id, Aadhar Card specifying the relationship.

For Self-Employed

The self-employed (whether professional or non-professional) need to also submit the documents related to their business. So, the self-employed applicants will submit all the above documents plus the following:

• Proof of business existence (Incorporation Certificate, GST Registration Certificate)
• Business profile (A brief about your business on your letterhead)                          
• Last 3 years Income Tax Returns with computation of income. For the tax returns you provide a copy of the ITRV. The tax computation documents are generally provided by your CA. You need to get these documents certified by your CA (sign and seal)
• Last 3 years CA Certified / Audited Balance Sheet and Profit & Loss Account
• Last 6-months bank statements with bank seal.

Note that these document requirements may vary slightly from bank to bank.

Step 3: Home Loan Application

Now that you have all the documents in place, you can ask the bank employee to come for completing the loan application.

The bank employee will come with all the required forms. They will fill the forms, verify your documents and will ask you to sign the application form in multiple places. You can expect to sign at over 100 places. All co-applicants will sign.

The bank employee will take the duly-filled application and login your application in their banking software. Once your application is logged in, you will receive an SMS with an application number.

Step 4: Physical Verifications

After the application is submitted, the loan sanctioning process will start. The first thing the bank will do is to conduct a physical verification of your residential address. They usually do this via a third-party. Your address as per your application will be shared with the verification company who will send a person to your home to verify the address. Usually the assigned person will call and come. During their visit, the person may also ask you some questions about yourself and the residence.

If you are self-employed, the bank will also conduct a verification of your office address along with a discussion about your business. As a part of this process, the bank wants to make sure that it is a real business, so they want to see your office setup. During the discussion they will ask you questions about your business to ascertain the nature of business and your revenue, etc. This step is not a problem for most businesses. However, many people run their businesses from home (for example, freelancers, bloggers, traders, etc.). For them, sometimes it requires a little extra convincing about the genuineness of the business. But usually there is nothing to worry. As long as you can show them the business board outside your door, show them the incorporation certificate and GST certificate, and explain to them the nature of your business, show them how and where you work from, it will be fine.

At this stage, if any of these verifications fail, your loan application will be rejected.

Step 5: Credit Evaluation

At this stage, your loan application is through with the physical verifications and will now be sent for credit evaluation. A credit manager will go through your application and all your documents. They will do a thorough credit assessment to ascertain the loan eligibility. The credit manager will also call you to discuss your financials, clarify any doubts and sometimes even ask for extra documents or information, such as information about your client, details of a specific financial transaction, details of other loans you have, etc. Based on their assessment, the credit manager will fix the loan amount that they can sanction for you. This amount may be less than what you asked them for at the time of application. For example, it’s possible that you applied for 50 lakhs but they sanction only 40 lakhs. The eligibility is determined based on your repayment capacity determined by the credit manager after looking at your financials. You can request them to increase it if it doesn’t meet your needs and, in most cases, they do increase it a bit.

Step 6: Loan Sanction

The credit manager after doing all the needed process will finally sanction your loan and issue you a Loan Sanction letter. This is a very important letter as it contains the loan amount that is sanctioned and various terms of the loan such as the interest rate offered etc. The interest rate will be either fixed or floating rate based on what you have selected in the loan application. The Sanction Letter will be valid for the next 3 to 6 months. This means that you need to finalize the property in that period and get the loan disbursed.

Step 7: Loan Disbursal Request

After finalizing the property, you are ready for loan disbursement. You can tell your bank CRM that you would like the loan to be disbursed. At this stage, the bank will create a loan agreement that you will need to sign and submit all the required documents for loan disbursal. For the purpose of loan disbursal, you will need to submit the following documents to the bank:

1. Proof of payment of your contribution: Banks will generally fund 80-85% of the property value. So, if the property value is 100 lakhs, the maximum loan you can get is 80-85% based on bank policy. The rest of the money need to be paid by you. This is the owner contribution and you need to make this payment before getting your loan disbursed. Note that even if your loan amount eligibility is 90 lakhs as per the sanction letter, the bank will finally disburse only max 80-85% of the property agreement value. Banks also do not fund the registration fees, stamp duty etc. You need to pay that from your own pocket.
2. Loan Agreement: Once you have purchased the property, the builder will enter into a loan agreement with you. You need to submit the original signed copy of this agreement to the bank.
3. TDS Paid details: If the property purchased is of above 50 lakhs, you will pay 1% TDS of every payment you make to the builder as TDS. You need to submit all these TDS challans and form 16Bs to the bank.
4. Demand Letter: The builder will also issue you a demand letter for the remaining amount that needs to be paid. This needs to be submitted to the bank in original.
5. Cost Breakup Letter: The builder will also issue a cost breakup letter that you need to submit to the bank.
6. NOC: The builder will also issue a NOC stating that they have no objection in you taking a loan from the said bank. This document also needs to be submitted to the bank.
7. Legal Verification: If it’s an independent house or a non-approved project by the bank, the bank will conduct a legal verification of the property documents. Usually the builder will help you with providing all these documents to the bank for their verification. The documents include various property documents such as mother deed, approved plan, clearance certificates from various authorities. You needn’t worry about it as these are standard documents that the builder will provide to bank for their perusal. If it’s a pre-approved project, this step is already done, and the legal verification is completely skipped for your loan purposes.

Step 8: Legal and Technical Verification

Once the bank has all the documents, they will conduct the legal and technical verification. As mentioned earlier, the legal verification is conducted only in case the project is not pre-approved. The technical verification is conducted for all properties. As a part of the technical verification, a person from their verification team will visit the property (your specific apartment unit) and assess it technically to ensure that the property is indeed as mentioned in the loan agreement.

Step 9: Loan Disbursement

Once everything is set, the bank will finally disburse the loan, and prepare the demand draft for the loan amount in the name of the builder (in case of purchasing from builder). The day the loan is disbursed your EMI starts. The bank will keep the DD with itself till you are ready for the registration of the property. They will share a scanned copy of the DD with you that you can show to the builder. Builder will generally want to see this to proceed with the registration.

Step 10: Property Registration and Handing over the Loan DD to Builder

At this stage, you will mutually decide the registration date with the builder. The builder will ask you to prepare DDs required for the registration of property. You will need to prepare these DDs at least one day before the registration date. Once the date and time is fixed, you will inform the location of the sub-registrar’s office and the time to the bank CRM. All three parties, you, builder, and the bank employee will come to the registrar’s office. The builder will bring the sale deed, you will carry the proof documents such as Aadhar and PAN card and the registration DDs that you prepared, and the bank employee will carry the DD and the original loan agreement that you had submitted to them. The registration process will take place. Once the process is completed, the bank employee will hand over the DD to the builder’s person, and the registered original sale deed as well as the loan agreement will be handed over to the bank employee. You will take a photocopy of the sale deed for your use.

The bank will keep the original documents safely with them and will return them to you when you close the loan.

You have successfully completed the home loan process.