The first step in securing a home loan is to get a home loan sanction letter. A sanction letter is issued after all the negotiations for the home loan are complete.
At the time of applying for the loan, the lender generally asks for some basic documentation (like income sheet, property documents etc.). These documents help the lender to ascertain the amount of loan along with the risk involved. Then after scrutinizing the documents the bank or the financial institution makes the offer. If you make any suggestions or any alterations are required, same are duly noted. Then the offer letter is issued that is your house loan sanction letter.
This letter makes it clear that now you are eligible for the loan and bank is okay to offer you the mortgage- subject to certain terms and conditions. But it should be noted that a Home Loan Sanction letter is not a binding offer. For a binding offer a formal loan offer document is issued later on.
Although each bank or financial institute has a different format for the sanction letter, the main points covered in a home loan sanction letter are as follows-
- Total amount of the home loan
- Time duration of the home loan
- Details about interest rates (including base rate, actual rate etc.)
- Estimated EMI and down payment. Also any other payment scheme which is applicable or offered.
- Terms and conditions for which loan would be applicable
- The validity period for the home loan sanction letter. In most cases it is six months but this differs from lender to lender.
The next document you receive, if the loan terms are mutually agreed upon, is a formal loan approval letter. This reflects most of the terms that were mentioned in the sanction letter and is binding document as you have to put your signature along with the lender. Further to this, the disbursal of the home loan starts.
