Atul is planning to buy a new home in Pune. He has approached different lenders to understand his home loan eligibility. He has a confusion – how is a loan sanction letter different from loan disbursement.
In simple terms, a loan sanction letter is a confirmation from the lender that you are eligible for the home loan. The loan is disbursed after the property is identified, verified by the lender, and the loan agreement is signed.
Let’s understand in detail.
Sanction Letter
When you approach a lender for a home loan, the lender verifies your income and credit score. Based on a preliminary analysis, the lender issues a sanction letter. The sanction letter confirms your home loan eligibility. It contains details like:
- Amount sanctioned
- Home loan interest rate applicable
- Type of interest – whether fixed or floating
- Tenure of the loan
- Terms of repayment
- Tax benefits available
- Validity period of the sanction letter
- Other terms and conditions of the loan
With a home loan EMI calculator, you get a fair idea of the loan amount and tenure. The loan sanction letter gives you an actual picture of the amount, interest rate, and loan terms.
The sanction letter is valid for the period mentioned in the letter, generally six months. The loan disbursal must be completed within this period, else the sanction letter expires, and you may have to re-apply for getting the loan sanctioned.
Applying for sanctioning a home loan is simple. It can even be done online. Once you submit the documents, the lender usually takes 2-3 weeks to give you the sanction letter.
You must accept the sanction letter and communicate your acceptance to the lender. It is crucial to read the sanction letter before signing to be aware of the loan terms.
The sanction letter is not a confirmation of the home loan. The confirmation takes place during the disbursement stage.
You must remember that the lending bank or financial institution can cancel a sanction if there are circumstances like a borrower change in financial standing or default. However, this is rare, and lenders consider canceling the sanction letter as a mechanism of the last resort.
Disbursement
Once you receive the loan sanction letter, you must proceed with finalizing of the property you wish to buy and inform the lender about it.
The lender will verify the property ownership documents. A team may also be sent for a technical overview of the construction of the property, location, area measurement etc. Once the lender is satisfied with the legal and physical verification, it will send you the loan agreement.
The loan agreement contains the terms of the loan in great detail. For instance, the lender may provide for full disbursement of the loan if you are purchasing a ready-to-move-in or a resale property. However, the disbursement may be in parts or aligned with your developer if you are purchasing an under-construction property.
You must read the loan agreement carefully before signing it. This ensures that there are no surprise elements like processing charges and pre-payment charges. You can also clarify your doubts with the lender before signing.
Once the loan agreement is signed, the lender disburses the loan amount as per the agreed schedule. The disbursed amount is credited to your bank account within 24 hours. The lender informs you about every disbursement through email, SMS, or other means.
Conclusion
Understanding the difference between the sanction letter and disbursement is essential. The sanction letter gives you financial support. It also provides a fair understanding of the property value you can buy.
Meanwhile, disbursal is the final step. The loan amount is disbursed after property verification and signing the loan agreement.
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