Home Loan Process 2023: A Step-by-Step Guide to Getting Your Dream Home
February 20th, 2023
A home loan is a loan taken to purchase a house or any other residential real estate property. You can avail home loans from banks, housing finance companies, or non-banking financial companies (NBFCs). Taking a home loan involves several steps and can seem daunting, but it gets a lot easier when you have your loan pre-approved.
Loan pre-approval is an important step in the home-buying process. Pre-approval provides a potential homebuyer with several advantages. This includes the ability to make an offer on a home with confidence and the advantage of being able to shop for a home with a specific budget.
The pre-approval process begins with a homebuyer providing information about their income, assets, debts, and credit history, to a lender (i.e. a bank / housing finance company / NBFC). The lender will then review this information and based on their criteria, will provide a loan approval or pre-approval. This approval will specify the maximum amount a buyer can borrow, the loan type, and the interest rate.
Having a pre-approval letter in hand gives homebuyers several advantages. First, it informs sellers that the buyer is serious and financially capable of buying the property. This can be an advantage in a competitive market, where sellers may choose to accept an offer from a pre-approved buyer. Second, a pre-approval letter gives the buyer confidence that they can purchase the property. Finally, this entire process helps the buyer determine a realistic budget for their home purchase.
In this blog, we look at the entire home loan process and how you can avail a loan
Table of Contents
How to Get Started With Home Loan Process
Step 1: Calculate your Home Loan Eligibility
The first step in this process is to calculate your home loan eligibility, which is the amount you can borrow. Your eligibility will depend on your current income, age, co-applicant’s income (if applicable), credit score, and debts.
Step 2: Choose the Home Loan Provider
The next step is to choose a home loan provider. You can opt for banks, housing finance companies, or NBFCs. Different providers offer different rates, terms, and conditions. It is important to compare these options, and then select a provider that best meets your financial needs.
Step 3: Fill Up the Home Loan Application
Once you have chosen a home loan provider, you will need to fill up the home loan application. This is a detailed document that contains information about you, your co-applicant (if any), the property you wish to purchase, and other details.
Step 4: Submit the Required Documents
Once you have filled up the application form, you will need to submit the required documents. These include your identity proof, address proof, income proof, and any other documents your home loan provider may ask for.
Home Loan Interest Rate of all Banks 2023
Starting Interest Rate (p.a.)
|Kotak Mahindra Bank||8.65% p.a. onwards||0.50%|
|Citibank||6.80% p.a. onwards||Rs. 10,000|
|Union Bank of India||8.60% p.a. onwards||–|
|Bank of Baroda||8.60% p.a. onwards||Contact the bank for information|
|Central Bank of India||Contact the bank||Rs. 20,000|
|Bank of India||8.65% p.a. onwards||–|
|State Bank of India||8.75% p.a. onwards||0.35% onwards|
|HDFC Home Loans||8.60% p.a. onwards*||0.5% or Rs.3,000 whichever is higher|
|LIC Housing Finance||8.90% p.a. onwards||Rs. 10,000 -Rs. 15,000|
|Axis Bank||8.60% p.a. onwards||Rs. 10,000|
|Canara Bank||8.55% p.a. onwards||0.50% of the loan amount|
|Punjab and Sind Bank||8.60% p.a. onwards||Full Waiver|
|IDFC First Bank||8.75% p.a. onwards||Rs. 5,000 – Rs. 5,000|
|Bank of Maharashtra||8.35% p.a. onwards||Rs. 10,000|
|Indian Overseas Bank||9.30% p.a. onwards||0.50% (Max Rs. 20,000)|
|Punjab National Bank||8.55% p.a. onwards||0.35% (Max Rs. 15,000)|
|UCO Bank||8.75% p.a. onwards||0.15% (Rs. 1,500 – Rs. 15,000)|
|IDBI Bank||8.75% p.a. onwards||0.50% (Rs. 2,500 – Rs.5,000)|
|HSBC Bank||8.35% p.a. onwards||1% (Rs. 10,000)|
|Karur Vysya Bank||8.95% p.a. onwards||Rs. 5,000|
|Saraswat Bank Home Loan||8.60% p.a. onwards||Nil|
|Jammu and Kashmir Bank||8.00% p.a. onwards||Rs. 500 – Rs. 10,000|
|South Indian Bank||Repo Rate + 3.35% p.a. onwards||0.50% (Rs. 5,000 – Rs. 10,000)|
|PNB Housing Finance Limited||8.75% p.a. onwards||Up to 0.50%|
|Federal Bank||9.90% p.a. onwards||Rs. 3,000 – Rs. 7,500|
|Standard Chartered Bank||8.40% p.a. onwards||1%|
|Aavas Financiers||Contact the bank||1.00%|
|Karnataka Bank||8.67% p.a. onwards||Rs. 250|
|Sundaram Home Finance||Contact the bank||Rs.3,000 (for salaried)|
|Dhanlaxmi Bank||Contact the bank||Rs. 10,000|
|Tata Capital||8.95% p.a. onwards||0.50%|
|Tamil Nadu Mercantile Bank||8.75% p.a. onwards||Rs. 15,000|
|Bandhan Bank||8.65% p.a. onwards||1% (Rs.5,000)|
|Yes Bank||8.95% p.a. onwards||1% (Rs. 10,000)|
|Hudco Home Loan||8.35% p.a. onwards||NA|
|Indiabulls||8.95% p.a. onwards||0.50% onwards|
|Aditya Birla||8.50% p.a. onwards||1%|
|GIC Housing Finance||8.10% p.a. onwards||Rs. 2,500|
|Reliance Home Finance||Contact the bank||Rs. 3,000 – Rs. 6,500|
|Shriram Housing||9.50% p.a. onwards||NA|
|India Shelter Finance||13.00% p.a. onwards||2.00%|
*Home loan interest rates for all banks updated on 20 Feb 2023. SOBHA Limited is not liable for any damages arising out of the use of this information.
Must Read: Tax Deductions on Housing Loans
Step-by-Step Guide to Home Loan Application Process
Step 1: Gather financial documents
Before you apply for a loan, keep a few pertinent documents handy. They are:
- Proof of Identity (Aadhaar card is the most widely accepted document)
- PAN card
- Proof of Address (Aadhaar card, electricity bill, property tax receipt)
- Recent Salary Slips
- Bank Statements of the last 6 months
- Income tax returns of the last 3 years
- Form 16
- Loan Repayment Track Record
- Assets and Liabilities Statement
Step 2: Fill out the Loan Application Form & Attach the Documents
In the application form, fill your name in along with your phone number, residential address, monthly/yearly income, educational information, employment details, property details, the estimated cost of the property, etc.
With the above details filled out, you will then have to attach photocopies of the documents mentioned in Step 1. In some cases, lenders may ask you to self-attest these photocopies – which essentially means you sign on the copies and mention the date. This indicates that you attest that these are true copies of the original documents.
Step 3: Document Processing and Verification
Banks and other lenders often receive many loan applications daily. For the banks to move forward with the paperwork, they will evaluate the documents. If a loan applicant furnishes forged documents, it is deemed a criminal offence.
The banks look at the following details of the loan applicant:
- Place of employment, and employer credentials
- Residential address (previous and current)
- Contact numbers of residence and workplace
A bank representative is assigned to verify these details, including workplace and residence of the loan applicant. If all the documents submitted are correct, and the information is found to be true, the loan applicant moves to the next step.
Step 4: Pay the Processing Fee
After filling out the form and attaching the relevant documents, the next step is to pay a processing fee to the bank or the lender you’re borrowing the loan from. The purpose of the processing fee is to maintain the account of the loan applicant. Every year, you are expected to send a post-dated cheque and a copy of your Income Tax certificates to maintain the account.
Usually, the processing fee ranges between 0.25% to 0.50% of the requested loan amount. For example, for a home loan of Rs. 50 lakh, the processing fee is estimated anywhere between Rs. 12,500 and Rs. 25,000.
Step 5: Discussion with the Bank
Before the loan amount is sanctioned, the bank / financial company may want to have a face-to-face interaction with the loan applicant. Usually, this is done to gather more details about the applicant and to assess if he / she will repay the loan with interest. More often than not, this is just a formality since all the information is already verified.
Step 6: Legal and Technical Check
Since banks are lending huge amounts, they are extremely cautious. Hence, a property expert is deployed to check the premises of the property. This expert could be a civil engineer or an architect or any other employee of the bank.
During the visit to the site, the expert pays attention to:
- The construction stage
- Quality of construction
- Work progression
- Estimated time of completion
- Layout of the building and permissions
- Valid requisite certificates for construction on the land
- Environmental norms being followed
If the construction is already complete, the expert will check:
- Age of the property
- Internal / external maintenance of the property
- Loan tenure, if the building falls under the purview of eligibility
- Quality of construction
- Existing mortgages
- Building approval plan and other approvals by the government
- Property valuation
- Valid requisite certificates to handover
Do note that a fee will be charged for this technical check, which may be recovered separately or included in the processing fee.
Step 7: The Sanction / Approval Process
This is one of the most crucial steps in the entire process. The decision to approve or reject the loan application lies with the bank. At any point, if the bank is unsure of the details provided by the loan applicant, they can halt the process or reject the application. However, if all goes well, the loan will be sanctioned. The approval is given based on the genuineness of the documents furnished by the loan applicant.
The bank completes and communicates the maximum loan amount that can be sanctioned to the applicant. It will then proceed to the next step of rolling out the sanction letter, which could contain a few policies that must be fulfilled by the applicant before disbursal.
Step 8: Processing the Offer Letter / Sanction Letter
Once the loan amount is sanctioned or approved, the bank sends a certified offer letter which mentions:
- The loan amount that is sanctioned
- The interest rate on the loan amount
- If the interest is fixed or variable
- Loan’s tenure details
- Mode of loan repayment
- Terms, conditions, and policies of the home loan
Upon agreeing to the offer letter, the applicant is expected to sign a duplicate copy of the offer letter, which will be kept in the bank’s records. As an applicant, you must read the offer letter carefully, check if the rate of interest is as discussed, and then sign it.
Must Read: How To Reduce Home Loan Interest Rate
Step 9: Loan Agreement and Disbursal
Once you’ve signed the loan agreement and completed all legal proceedings, the loan amount is given via cheque – which is usually in the name of the seller or the development / society authority or the builder. However, if the applicant has made an excess payment from his / her account, then the cheque can be written directly in the applicant’s name. Also, if the applicant has tried to source more funds from elsewhere, those details must be furnished as well.
Loan disbursal depends on the stage of construction. Full disbursal happens for properties where the construction is complete. The loan amount is released in parts if the property is still being constructed.
- Ensure that you have done thorough research on the banks / companies offering cheapest home loans, and carefully check the bank’s eligibility criteria before beginning the process.
- Refer to the list of documents required and keep them easily accessible. Carry all original documents at the time of a face-to-face meeting with the bank or its representative. Interest rates are negotiable, so always use this opportunity to your advantage.
After going through all the points in the Home Loan Process, you would have realised that the entire process is fairly simple, albeit lengthy. Bookmark this ready reckoner for a smooth loan process.