Home loan sanction letter – what is it?

Home loan sanction letter – what is it?

The home loan process is not an easy one. It can take months for a loan to be approved. Between the lender and the borrower, there are several processes and formalities that need to be completed. Also, since it is a high value loan, the lender needs to confirm that you have the capacity to repay this loan that could possibly last for over 2 decades. Based on your credit scores, income and loan eligibility, the lender determines the loan amount, interest rates, tenure and the loan EMI amounts. One of the most important processes in acquiring a home loan is getting the loan sanction letter. Here’s all you need to know about what is sanction letter for home loan.

What is sanction letter for home loan?

A home loan sanction letter is a document or letter issued by a bank or a housing finance company when one applies for a home loan. The lender provides this letter only after verifying that the borrower is eligible for the home loan.

Lenders conduct an extensive evaluation of the borrower’s income, credit repayment behaviour, and credit scores before sending this letter to the borrower. The lender also verifies all the documents submitted by the borrower, checks the market value of the property he intends to purchase as well as its legal validity before the loan offer is made.

Through the sanction letter, the borrower is informed about the possible loan amount he is eligible for, including the proposed interest rate and loan tenure. However, the offer letter is not to be confused with the final loan agreement. It is only an indication that the loan process can be started by the borrower. A home loan sanction letter therefore is simply a letter stating that an applicant is eligible for a home loan and the lender is willing to finance the same based on certain terms and conditions.

Sanction letter for home loan – the contents of the letter

The lender provides the below mentioned information in the home loan sanction letter

• The total loan amount sanctioned
• The loan repayment tenure
• The applicable interest type (fixed, floating and hybrid) and interest rate at the time of loan disbursal
• The base rate for calculating interest
• The equated monthly instalment or loan EMI amount as well as the pre EMI amount, if applicable
• The validity period of the sanction letter
• Terms and conditions of the loan

While the format of the sanction letter may differ from one lender to another, the contents of the sanction letter essentially remain the same.

Sanction letter for home loan – validity

While you may receive the loan offer, it is important to remember that the sanction letter does not necessarily mean that your loan is approved. It just means that you can now begin with the formalities related to the loan. You need to submit additional documents as required by the lender. The loan is considered final only after the loan agreement is signed and the amount is disbursed.

Lenders typically provide sanction letters with a validity period of six months during which time the entire loan procedure – from submitting the personal documents, the property documents and evaluation of the property being purchased should be completed. In case the process is not completed during this time, the sanction lapses and the borrower needs to restart the entire process.

Final thoughts: While the sanction letter for home loan is an indispensable part of the entire home loan process, it is not the same as the legal approval of the loan. There are a lot of formalities and procedures that take place between the time the letter is sanctioned and the loan amount is disbursed. Also, the borrower should be aware of the entire home loan disbursement process to understand what steps need to be followed from the time the loan is sanctioned until it is disbursed.