What Is A Home Loan Sanction Letter And Why Is It Important?

Applying for a home loan can be a tedious process often involving scores of documents. One crucial document integral to this process is the home loan sanction letter that outlines the terms of the loan. This official document is issued by a bank or financial institution confirming the lender’s willingness to grant a home loan based on the borrower's eligibility.To get a sanction letter, you must submit an application along with necessary documents, such as proof of identity, income, and property details. The lender then reviews your creditworthiness, income stability, and the property’s legal status and will issue the sanction letter if satisfied. Key details included in a sanction letter Approved loan amountInterest rate and type (fixed or floating)Repayment tenureLoan offer validity period which typically ranges between 3 months and 6 monthsTerms and conditions, such as processing fees, late payment penalties, or insurance requirementsWhy is the sanction letter important? Your sanction letter can be useful for various purposes such as:Proof of eligibility: It confirms that the borrower meets the lender’s criteria, making property transactions smoother.Tool for comparison: Use the terms in the sanction letter to compare other offers or negotiate for better rates.Requirement for property purchase: Many developers request a sanction letter before signing a sale agreement, especially for new projects.Sanction letter vs disbursementA sanction letter is often confused for a loan disbursement, which is inaccurate. A sanction letter indicates preliminary approval of the loan and specifies the terms. However, it is not the final loan agreement. Loan disbursement, on the other hand, happens after further verification and the signing of a legally binding agreement. Only then are the funds transferred either to the builder for new properties or to the seller for resale properties. It is crucial to understand this difference to avoid confusion and ensure smooth processing of your home loan. Steps after receiving the sanction letter Upon receiving the sanction letter, review its terms thoroughly. If you accept the terms mentioned, sign and return the acceptance copy to the lender, who will then issue an offer letter, outlining the final loan terms. Once the necessary formalities and verifications are completed, the loan disbursement process will begin. A home loan sanction letter is a key to your home-buying journey. Serving as proof of eligibility, it also provides clarity on the loan terms and can be used to negotiate favourable loan terms.The writer is DGM, Communication at Bankbazaar.com. This article has been published as part of a special arrangement with BankBazaar.