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Home Loan: What is it and How Does it Work?

Published on :2025-02-27

In India, owning a home is a dream for many. Buying a new home is considered one of the greatest achievements of their life; it is a milestone for them. And why not? After all, being a homeowner not only gives your family a roof over their head but also gives you that sense of financial security. 

If you are looking to purchase a new home or construct your own house but don’t have enough money to complete the purchase or start the construction work? Don’t worry! You can apply for a home loan, get the desired funds, and take a step closer to homeownership. 

If you are not very financially savvy and not sure what a home loan is or how it works, then this guide is just for you. Read on!

 

What is a home loan?

A home loan is a type of credit offered by banks, HFCs (housing finance companies), etc, to help potential home buyers make their dream of being a homeowner come true. Home loans are secured loans, meaning the property for which you avail the loan acts as collateral or security, giving the lenders a greater degree of assurance of recovering the money if you fail to repay the amount on time. 

A home loan is also commonly known as a housing loan, and it helps you own or construct a home and even pay for it without dipping into your savings or liquidating the investments. 

 

How does a home loan work?

Now that you know what a home loan is, you must also know how a home loan works.

The working of a home loan is actually quite as simple as it may seem. However, it does entail certain steps and legal processes, which include:

  • When you have decided that you want to buy or construct a home, you must approach a lender of your choice and initiate the loan application process. It is better to apply for a home loan with only reputed lenders like India Shelter. They have a simple online application process, giving you a seamless and hassle-free borrowing experience. 
  • Once you submit the application online, the lender will then review your application and determine your eligibility based on your age, occupation, employment stability, income level, creditworthiness, etc. At this stage, the lender will also pull up your credit report.
  • After the verification process is done, the lender will determine your eligibility, i.e., decide the maximum amount you can borrow and convey the same to you. At this stage, the lender will also ask you to submit the necessary documents and verify their authenticity. 
  • If all the documents are good, the lender will then proceed with further process or they may ask you to submit the missing documents. If you have already zeroed down on the property, the lender will appoint a team of experts to conduct a physical inspection of the property as well as carry out the legal verification of all the documents. 
  • After the legal verification, the lender will send you a sanction letter. It will mention the sanctioned amount as well as other repayment terms. If you agree with the terms, you must send a signed copy of the letter back to the letter within a specified period, which is usually three months from the date of receiving the letter. 
  • Lastly, the lender will draft a full loan agreement after you have paid the down payment, and both you and the lender must sign it. As a borrower, you must thoroughly read the terms and conditions before signing the papers. After the signing process, the lender will disburse the amount as per the agreed terms. 
  • Generally, if you are buying a resale property or a ready-to-move apartment, the lender disburses the amount in a single lumpsum payment. But, if you are buying an under-construction property or want to build your own home, the payment is disbursed in instalments after completion of different stages of construction. 

 

What is the processing time for a home loan?

The processing time for a home loan may vary from one lender to another, and also how well you comply with the legal requirements, including the documentation process, making a down payment, and rectifying the errors in the application form (if any). 

But generally, if everything goes well, the processing time can range from a few weeks to several months. With a lender like India Shelter, you can be assured of a quick approval process and swift turnaround time so that you can complete the purchase at the earliest. 

Also, they offer a dedicated customer support service. A dedicated representative will help you get answers to all your queries as well as guide you through the whole process, from filling out the application form to documentation and working in your interest until the disbursement is complete. 

 

What is a home loan balance transfer?

Home loan balance transfer is a service offered by financial organisations that allows you to transfer your home loan from the current lender to a new one. You can do this to take advantage of the lower interest rate offered by the lender and repay the balance amount at reduced EMIs and ease the repayment burden. 

 

Conclusion

Getting a home loan is the most financially wise decision to fund the purchase of a new home. It allows you to repay the amount in affordable EMIs over an extended period of up to 30 years. However, finding the right lender is the key to having a hassle-free experience. 

 

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