A home loan sanction letter is a document which is issued by a lender to a prospective borrower, stating the intention to offer the loan. This is one of the most crucial documents in a home loan process as it sets the stage for the mortgage procedure to start. It makes clear that subject to specified terms and conditions the prospective borrower is eligible for the loan and lender is willing to proceed further with the loan process. However, it is not a binding approval for the loan. A formal loan offer document is quite different from loan sanction letter.
A sanction letter is not issued immediately and is only issued after an application for the loan is made. The lender scrutinizes the documents submitted by the applicant, check the risk factor, income sheet of the prospective borrower and other factors. It is when they have checked the credit worthiness of the person seeking the loan.
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 –
• 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 the borrower receives, 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 the borrower has to affix signatures on the same. Only then, the disbursal of the home loan starts.