Home Loan Sanction Letter and its Importance

Embarking on the journey towards homeownership is a significant accomplishment and one must be more careful when you are getting home through a home loan. The gap between getting your home loan application approval and buying a house is a document called a home loan sanction letter. This blog by India Shelter Home Loans aims to shed light on this crucial document, equipping you with essential knowledge for your home loan journey.  

 

Understanding the Home Loan Sanction Letter 

In case your home loan application is approved, the Sanction Letter will be sent to you. It is basically an official written proof from a lender—mostly commercial banks or housing finance companies—that you fulfill their conditions to borrow and, at the same time, it tells whether they are ready to give you a certain sum of cash or otherwise. For example, it is riskier in terms of qualification criteria for other home loans, including home construction loans. 

 

The Importance of the Sanction Letter: 

The significance of the sanction letter of Home Loan cannot be overstated. Here are key reasons why it holds immense importance in your journey: 

• Loan Eligibility Letter: It is an official confirmation for approval of your home finance and the loan amount applied, or any other revised amount as per your profile.
• Transparency in Loan Process: This letter will contain all the important details, such as the amount that is finally sanctioned as loan, interest rate on home loans, whether fixed or floating, tenure of the repayment, and home loan EMIs. It provides clarity and transparency to your overall financial planning You can get an estimate of the EMI from India Shelter Home Loan EMI Calculator.
• Negotiation Leverage: Armed with the sanction letter, you have the ability to negotiate better terms with other lenders, should you find a more competitive offer 
• Progression Toward Final Agreement: The sanction letter acts as a preceder to the final loan agreement and eventual disbursal of funds. 

 

Components of a Home Loan Sanction Letter 

While the format may vary slightly among lenders, common elements typically include: 

• Borrower and Lender Details 

• Loan Amount and Processing Fees 

• Interest Rate 

• Loan Tenure 

• Estimated Monthly Installment (EMI) 

• Validity Period 

• Terms and Conditions 

 

What is the Procedure to obtain a Sanction Letter? 

When the lending Bank approves a loan and issues the sanction letter, only then the borrower is able to confirm the booking of the property and make the down payment. Most of the Banks follow the following Procedure: 

• The first step is an eligibility check done by banks or housing finance companies. Eligibility may depend on various factors such as the income of the borrower, income stability, CIBIL score, existing loans, etc.  
• Property documents are verified by the lender to check the authenticity of the borrower. 
• The Bank will also check the ability and liquidity of the borrower to pay the margin money. 
• The borrower shall provide the lender with basic documents such as a photograph, identity document, residence proof, income statement, tax return, sale deed of property, 6 months' loan statements etc. before sanctions are imposed. 
• A sanction letter shall be issued based on these facts. Every Sanction letter contains loan-related details like amount of the fine, the repayment period, interest rate, method of charging interest, floating interest rate, fixed interest rate, validity of the fine letter, etc. 

The lender stamps and signs the sanction letter in order to verify that the loan has been approved and is ready for dispensation to the borrower.  

If you’d like to unlock big tax savings in 2024! Learn how to claim home loan tax benefits in India.

 

Home Loan Sanction Letter Sample  

(This is a general structure and actual Format may vary) 

Digital Sanction Letter vs. Final Loan Agreement 

Many lenders now offer digital sanction letters, accessible through online portals or mobile applications, which carry the same weight as traditional paper letters. It's important to note that the sanction letter is not the final loan agreement but rather a preliminary approval outlining proposed terms. The final agreement will entail legally binding terms that require your signature before loan disbursal. 

Home Loan Sanction Letter Validity: 

The home loan sanction letter typically has a validity which ranges anywhere between 3 to 6 Months, depending on the lender. The validity period is the time duration within which the borrower must complete the property purchase transaction and avail himself of the sanctioned loan amount.  If the validity of the sanction letter expires, then you can no longer accept the offer for the home loan based on the terms which were stated in the given sanction letter. 

 

Post-Sanction Letter Procedure 

Upon receiving the sanction letter, it is imperative for the client to: 

• Review the letter meticulously to ensure accuracy. 

• Submit any additional documents requested by the lender. 

• Fulfill any legal formalities such as property valuation or registration. 

• Sign the final loan agreement once you are comfortable with the terms. 

 

Conclusion 

The home loan sanction letter serves as an important step towards your dream for home ownership. Understanding its significance and the details empowers you to make informed decisions, thereby propelling you confidently forward in your home ownership journey. 

 *Do you know home loan insurance provides financial security in case of loan default!   Read our “Home Loan Insurance Guide” to know more.