Purchasing your own house is everyone’s dream. Every time you think about it, all that you can visualize is a beautiful home and a not-so-beautiful loan associated with it. With the growing real estate prices, it is inevitable to opt for a home loan to fulfill the dream. One may argue to save first and then alone opt for purchasing a house as an asset with the savings.
It is not an advisable option considering the following parameters:
- Investing in a home loan acts as a check on your expenses.
- Income tax savings are available on the purchase of a house.
- Purchase a house with your savings is time-consuming. With the spike in real estate, it might be even more expensive to purchase a home later.
Considering the above, it is generally recommended to opt for a home loan to purchase a house. A home loan is usually sanctioned for 80% of the property value, and the balance of 20% is to be arranged by the buyer. The fund requested for a home loan is considerably on the higher side; therefore, the documents required for a home loan and the amount of loan is subjected to stringent verification from the lender’s end before sanction.
Detailed below are the steps for sanction of a home loan and the documentation required thereon:
Steps for sanction of a home loan:
- Submission of loan application along with required documents
- Loan sanction – by the lender post detailed verification of all the documents submitted. It includes an assessment of the user profile, capability to repay, and also valuation of the assets pledged (if any)
- Loan disbursement includes verification of the purchased property by a third party and submission of a report thereon. The loan amount is disbursed to the bank account of the buyer.
What is the list of documents required for a home loan?
1) Income proof:
The income statement becomes a crucial part of the loan approval process. It establishes the credit score of an employee.
A credit score is determined based on the current income earned, past repayment pattern of loans, etc. Say you earn a steady income, and the history also states that all the repayment schedules of your past loan are complied with, and the credit score improves. An increase in credit score has a positive impact on the loan approval; in fact, it also leads to a reduction in the interest rate applicable. On the contrary, a low credit score due to unstable income or delayed repayment of previous loans can lead to a higher interest rate or decline of the loan request. Therefore, it becomes essential to maintain an appropriate repayment history and a stable income stream to get a loan sanctioned.
The following is the list of documents required to prove the applicants’ regularly monthly income:
- Form 16 (in case of a salaried employee)
- Incase of nonsalaried employees – the business income statement is to be provided
- Challans of advance income tax payment
- Salary statements for the last 3-6 months to establish a steady source of income
- Bank statements for the previous six months
- Employment identity card
- An income tax return filed for the last two years
Note: The period for which the documents are requested might vary based on the loan amount required
2) Property documents:
The lender does detailed investigation of the property that you intend to purchase. There might be cases where some customers may opt to submit false property documents and obtain loans. It leads to difficulty taking ownership of the house in case of noncompliance with the repayment schedule. In addition, the lender also verifies the house to ensure physical existence and cross-check with the documentation submitted. Therefore, detailed verification is a key; here is the list of documents required for a housing loan:
- Certificate of commencement of construction
- Agreement for sale registered copy
- Copy of approved building plan (to state that Govt authorities permit construction of this design and No. of floors)
- Invoice copy generated by the land owner on payment by the buyer
- Receipt of house registration
- Sanction Letter from the Government authorities
- Insurance copy of the property
3) KYC Compliance:
KYC documentation is the 1st step for verification of the user identity. It is to ensure that the loan is disbursed to the right person. Verifying all the valid documents issued by the Government is done by the lender. The following is the list of documents needed for home loan :
- Passport size photograph (recent photograph is advisable)
- Proof of Identity (It can be an Aadhar card/ PAN card/ Driving License/ Voter ID)
- Proof of Residence (to establish the residential address, which can be through electricity bill/ telephone bill/ bank passbook etc.)
- Proof of age (Birth certificate/ 10th class mark sheet)
4) Investment details:
Details of all the physical and digital assets owned by the buyer are to be provided. It establishes the repaying capability of the buyer and helps to evaluate the net assets of the buyer since bank statements provide only the cash at hand.
Now that the home loan document list and the overall process of loan sanction are detailed, the next time you intend to opt for a home loan, make it a point to ensure appropriate submission of all the relevant documents, maintaining the required credit score.
Make it a point not to approach multiple lenders at a single time in case any incorrect document submission with one lender might negatively impact your credit score. It shall, in turn, impact the loan approval process by other lenders. Therefore, after a comparison of interest rates, loan repayment schedule, processing fee, and other parameters, approach a lender. It shall ensure the smooth processing of your loan application.
After all, purchasing a house is the dream of every Indian, and you can alone turn that dream into a reality.