Loan Sanction Letter: Meaning, Format and Importance
What is a sanction letter, and how crucial is it in getting a home loan? We examine. This article also includes data such as the required paperwork and a sample home loan sanction letter.
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If you want to buy a property, you need understand the home loan process, which is divided into three stages: application, loan sanction, and disbursement. The house loan sanction stage is crucial since it determines whether the loan is authorised or rejected. After the house loan application procedure begins, banks review the applicant’s documentation and decide whether to approve the loan if the stipulated conditions are met. The lender will then provide a sanction letter. This document proves that you are eligible for the loan amount.
What is a loan sanction letter?
A sanction letter is a document issued by a bank or lending institution to a borrower that confirms that the house loan has been approved. It specifies the terms and conditions under which the loan will be issued.
The loan sanction letter contains important information such as:
- Home loan amount.
- The applicable interest rate (fixed or fluctuating).
- Interest is calculated using the base rate.
- Loan payback term.
- Mode of loan repayment.
- EMI/pre-EMI payment information.
- Validity of the loan sanction letter.
- Tax benefits.
- Special scheme (if applicable).
What is the process for getting a home loan approved?
A house loan approval process can take a long time. It begins when the borrower submits the loan application form together with the required papers. The bank or home financing company (HFC) subsequently verifies the applicant’s paperwork and financial facts. Banks utilise credit bureaus to determine the borrower’s creditworthiness and the value of the collateral. If the lender is pleased, it issues the sanction letter, which confirms that the loan has been granted.
Generally, the house loan approval procedure takes three to four weeks. However, a delay may occur if there is inadequate information or document proofs. The loan may also be put on hold for the aforementioned reasons.
How does a sanction letter differ from an in-principle approval or disbursement letter?
In-principle approval refers to the procedure by which the lender evaluates the applicant’s financial situation and issues an in-principle approval letter, ensuring that the lender will make the loan subject to successful verification of the papers. Lenders typically issue in-principle acceptance letters for pre-approved house loans. They also charge a fee, which is included in the total loan processing costs. The validity period varies from three to six months, depending on the lender.
A sanction letter for a house loan, on the other hand, is a document that confirms your eligibility to borrow the stated amount. The terms and conditions are applicable until the date specified in the letter. The lending institution might offer the original terms or adjust them based on the applicant’s loan eligibility.
However, a sanction letter is not legal approval of the loan, and processes must be completed before the money is disbursed. Once the applicant accepts the loan offer letter, the lender verifies all of the property documentation that the applicant sends. The lender will maintain these documents as security for the house loan until the applicant repays it. After that, the bank verifies the property the applicant plans to buy legally and technically. Following this phase, the lender’s legal representative finalizes the loan documentation and drafts, stamps, and signs the final loan agreement. The loan is then disbursed.
The disbursement letter includes the total loan amount paid by the lender. It may also include details regarding the house loan insurance amount, if any.
Importance of house loan sanction letter.
Home loan sanction letter sample format
Understanding the sanction letter format should be among the initial steps in the home loan application procedure. The loan sanction letter format may differ based on the lender. Let’s look at a sample house loan sanction letter.
Documents needed for house loan sanction letter
Prior to sending a sanction letter, the financial institution will need specific documentation. This may include:
Identity documents such as an Aadhaar card, passport, or PAN card.
- A passport-sized photograph.
- Proof of residence.
- Recent six-month bank statements.
- Recent three-month salary certifications.
- Current income tax return form.
- Property documentation.
In addition, the applicant may be required to furnish different financial information and pay a processing charge.
What happens once you receive your loan sanction letter?
After getting the home loan sanction letter, the bank/lender sends a certified offer letter that includes key loan data. A copy of the acceptance must be signed by the applicant and sent to the financial institution. As a result, it is critical at this point to thoroughly review the information provided in the penalty letter and comprehend the terms and circumstances.
Can a bank reject a house loan after receiving a sanction letter?
Typically, a loan sanction letter is given only after the lender has approved the loan application. However, in some cases, such as legal concerns with property, poor documents, job instability, and so on, the lender may reject the loan application. The sanction letter does not constitute a legally enforceable agreement.
What is a digital sanction letter?
Today, the home loan application process has been streamlined, with many banks and lending organisations providing digital options for applying for an e-home loan and receiving a digital home loan sanction letter. It is easy to obtain a house loan sanction letter from a major bank, such SBI or HDFC, or from a housing financing firm. You will be able to check the status of your home loan application online.
A digital sanction letter, as the name implies, is a digital version of the house loan approval document sent by the bank or lender prior to issuing the final home loan agreement.
Key facts to remember about the loan sanction letter.
- Before applying for a house loan, learn about the financial institution’s application process. This will make things easy for you.
- The applicant should be aware that the loan amount sanctioned may be less than the loan amount applied for, depending on his or her credit history. This is possible, for example, if the applicant owes money on previous loans.
- Before signing the acceptance, the applicant should carefully review all of the information provided in the agreement, including the interest rate.
- Additional documentation, as required, must be given before the sanction letter’s validity expires.
- Check the details of the property you intend to acquire. Banks are likely to reject the loan application if the property does not have a clear title or if the builder’s approvals are not in order.
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If you are looking for a house loan, you must understand the terms, including the sanction letter and final loan agreement. It is critical to remember that receiving a sanction letter does not mean that the loan is approved. It basically indicates that you are eligible to receive the loan amount. Furthermore, make sure to read the material attentively. Make sure you accept the document within the provided time frame. If you surpass this time limit, the bank will not approve your application and you will need to reapply.
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