Home Loan Sanction Letter: Meaning and Importance

Navigating the complex world of home loans can be overwhelming without the right information. One important aspect is to understand the role of a home loan sanction letter. Many homebuyers often mistake the sanction letter with disbursement, however, such is not the case. 

In this blog, we have decoded what home loan sanction letters are and how are they different from disbursement. Let's dive in!

What is a Home Loan Sanction Letter?

A home loan sanction letter is a document issued by banks or financial institutions, confirming that you are eligible for a home loan. This document serves as an official acknowledgment of the bank's intention to provide home loan. 

When you apply for a home loan, you need to submit certain documents including your ID, property and income proofs. The bank then verifies the documents. Once the bank is satisfied with your application and think that you're eligible for a home loan, they issue a sanction letter, which contains the details of the approved loan amount, applicable interest rate, repayment tenure, and other terms and conditions.

What Does a Sanction Letter Contain?

A home loan sanction letter may vary across banks but usually contains the following:

• Borrower and Lender Information: Names and addresses of both parties.
• Loan Amount: The total amount the lender is willing to sanction.
• Interest Rate: The applicable interest rate, which may be fixed or floating.
• Repayment Tenure: The duration over which the loan must be repaid.
• Validity Period: The time frame (usually between 3 to 6 months) within which the borrower must complete the property purchase and avail of the loan.

• Terms and Conditions: Any additional stipulations agreed upon by both parties, such as insurance requirements, processing fees, and late payment charges.

   

Why is Home Loan Sanction Letter Important?

The sanction letter plays an important role in the loan approval process. 

• Proof of Eligibility: It confirms that the borrower meets the lender's criteria for borrowing, which can facilitate property transactions.
• Foundation for Negotiation: Borrowers can use the details in the sanction letter to negotiate better terms or compare offers from different lenders.
• Requirement for Property Purchase: Many real estate developers require a copy of the sanction letter before finalising any purchase agreements.

How to Get a Home Loan Sanction Letter

The journey to receiving this letter typically involves several steps:

1. Application Submission: You submit a loan application along with necessary documentation, including proof of identity, income, property details and other necessary documents required.
2. Verification by Lender: The lender assesses the your creditworthiness, income stability, and other eligibility parameters.
3. Issuance of Sanction Letter: If approved, the lender issues the sanction letter detailing the terms of the loan.

But does that mean your home loan is finalised? Not really. 

Difference Between Sanction Letter and Final Loan Agreement

It is crucial to understand that a home loan sanction letter is not the final loan agreement. While it indicates preliminary approval, you will still have to undergo further verification and provide additional documentation before signing a legally binding agreement. The final agreement will include all terms related to disbursement and repayment obligations.

Difference Between Sanction Letter and Home Loan Disbursement

Home loan sanction letter is a letter of acknowledgement stating that you're approved for a loan. Home loan disbursement happens a few days later after you receive the sanction letter. For new property purchase-related home loan disbursals, the loan amount is directly transferred to the account of the builder. For resale properties, the loan is disbursed to the seller.

What are the Steps to Follow After Loan is Sanctioned?

After receiving the sanction letter, you should carefully review its contents and sign an acceptance copy if they agree with the terms. This acceptance is often followed by receiving an offer letter from the lender that outlines essential details about the home loan before disbursement. 

In summary, understanding your is vital for making informed decisions during your journey toward homeownership. It provides clarity on your borrowing capacity and sets the stage for negotiating terms with lenders.