What is the importance of a home loan sanction letter?

A housing loan proves to be immensely helpful for an individual and is also in high demand owing to various reasons. This is evident from data implying a 25% to 40% increase in home loan applications across Indian cities. Hence, prospective applicants must be aware of all the crucial aspects related to it. 

One of these is a home loan sanction letter which is one among the long list of documents require for a smooth disbursal of this credit instrument. The importance of this official document can be well understood through the following sections.

Importance of a home loan sanction letter and its role in the loan acquiring process

A housing loan sanction letter is a formal letter signed by the concerned authority of a lending institution and issued to a home loan applicant to inform about a housing loan’s approval. This official document contains all terms and conditions based on which a particular loan is offered. The content of a home loan sanction letter comprises the following information:

  • Base rate at which interest rate is being calculate
  • EMI and pre-EMI amounts
  • Validity of a sanction letter
  • Loan repayment tenor
  • Type of interest applicable on a home loan – floating, fixed, or hybrid
  • Actual rate of interest on a home loan that is applicable and prevailing at the time of disbursement
  • Lender’s terms and conditions on a home loan agreement
  • Total sanctioned housing loan amount

The entire procedure for a housing loan in India is a lengthy one, and it starts after an applicant submits the loan application form and all required documents. Once the process is initiate, the financial institutions examine the following aspects of an applicant:

  • Authenticity of every personal document submitted 
  • Credit history
  • Expected and current market value of the property acting as collateral
  • Legality of the property being purchase through a housing loan
  • Current income 
  • Repayment capacity 

If all mention criteria are met, the lending institution then decides on loan approval. If a loan is approve, the financial institution issues the home loan sanction letter to an applicant.

Why do you need a housing loan sanction letter?

A home loan sanction letter acts as proof of a borrower’s loan eligibility before they receive a formal loan agreement. Borrowers get an idea about their loan, the EMI payable, thereby helping them decide about the credit instrument based on their financial condition. 

Furthermore, while purchasing a house, one must submit a copy of this sanction letter to a housing society or developer. It also acts as proof during legal disputes regarding breach of the terms and conditions occurring between a lender and a borrower in future.

Prospective loan applicants must opt for a reputed financial institution. Some of the renowned ones extend several offers that can be beneficial for them. This includes pre-approved offers that accelerate a lending process and make it hassle-free. These offers are provided on multiple secured and unsecured financial products, such as home loans, loans against property, etc. Applicants can check their pre-approved offers by providing details, such as their name and contact number.

Given that, a decent credit history helps in loan approval and acquiring a home loan sanction letter. Borrowers must ensure to repay every credit instrument punctually. For this, they can use tools like a home loan EMI calculator to know the payable EMIs beforehand. This will enable them to manage their monthly instalment payments better. Additionally, they can use a home loan eligibility calculator prior to acquiring a loan, which is a similar user-friendly tool available online.

With the importance of a home loan sanction letter certainly evident now, individuals must ensure to preserve it properly throughout the loan tenor.

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