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Sanction letter is an important document that provides clarity and transparency in the loan process. It outlines the terms and conditions of the loan, including the loan amount, interest rate, repayment schedule, processing fee, prepayment charges, security or collateral, and other relevant details. This letter helps the borrower to understand the loan process and make informed decisions. It diminishes the risk of any misunderstandings or disputes in the future.
This blog will discuss the importance of a home loan sanction letter and what it includes.
Significance of a Home Loan Sanction Letter
The home loan sanction letter is an important document that provides several benefits to the borrower. Firstly, it confirms that the loan application has been approved, which is a significant relief for the borrower.
Secondly, it outlines the terms and conditions of the loan, which helps borrowers to understand the repayment schedule and interest rates. This enables borrowers to plan their finances and make timely repayments.
Thirdly, the home loan sanction letter indicates the loan amount the borrower is eligible for. This helps the borrower assess the house’s affordability and make informed decisions. Finally, the home loan sanction letter is a legal document that provides clarity and transparency in the loan process. It ensures that both the borrower and the lender are on the same page and reduces the risk of any misunderstandings or disputes in the future.
Sanction Letter Sample Format
Best Bank for Home Loan In 2023
| Name of Banks | Interest Rates (%) | Processing Fees | Bank Total Branches Across India |
| SBI | 8.50%* p.a. | 0.35% onwards | 24,000 |
| HDFC | 8.50%* p.a. | 0.5% or Rs. 3000 whichever is higher | 7,821 |
| ICICI | 9.25%* p.a. | 0.50% onwards | 5,288 |
| Axis Bank | 8.75%* p.a. | Rs. 10,000 | 5,617 |
| Kotak Mahindra Bank | 8.85% p.a. onwards | 0.50% | 1,752 |
| Bank of Baroda | 8.5% p.a. onwards | 0.25% | 8,200 |
| PNB | 8.5% p.a. onwards | 0.35% (Max. Rs. 15,000) | 12,248 |
| Union Bank | 7.90% p.a. onwards | 0.50% | 8,700 |
| LIC Housing Finance | 8.45% p.a. onwards | Rs. 10,000 – Rs. 15,000 | 9 regions, 24 back, 282 marketing offices. |
| Federal Bank | 7.65% p.a. onwards | 0.50% of the Loan Amount Property | 1370 |
Components of a Home Loan Sanction Letter
A home loan sanction letter is a comprehensive document including several vital details. These details provide transparency and help make the loan process easier and quicker. This document also allows the borrower to understand all loan-related conditions. Some of the key information included in a home loan sanction letter is:
Loan Amount
The home loan sanction letter specifies the loan amount for which the borrower is eligible. This amount is based on the borrower’s income, credit score, and other relevant factors.
Interest Rate
The home loan sanction letter specifies the interest rate that will be charged for the loan. This rate may be fixed or floating and can significantly impact the overall cost of the loan.
Repayment Schedule
The home loan sanction letter outlines the repayment schedule. This includes the tenure of the loan, the frequency of the repayments (monthly, quarterly, etc.), and the amount of each repayment.
Processing Fee
The home loan sanction letter may include a processing fee the borrower must pay the lender. This fee is typically a percentage of the loan amount and covers the cost of processing the loan application.
Prepayment Charges
The home loan sanction letter may specify the prepayment charges that the borrower needs to pay if they decide to repay the loan before the end of the tenure. These charges may be a percentage of the outstanding loan amount or a fixed fee.
Security or Collateral
The home loan sanction letter may specify the security or collateral that the borrower needs to provide to the lender. This may include the purchased house or any other assets the borrower owns. Other Terms and Conditions: The home loan sanction letter may include additional terms and conditions that the borrower needs to comply with. These may consist of maintaining a specific credit score, not defaulting on the loan, and providing regular updates on their financial status.
How to Apply for a Home Loan Sanction Letter?
To apply for a sanction letter, you must complete an application and provide the necessary documentation to your lending institution. This includes financial information such as bank statements, tax returns, and other proof of income. You must also provide proof of identity, such as a driver’s license or passport. Your lender will evaluate your application and provide a loan sanction letter if approved.
Home Loan Sanction Letter – Documents Required
The applicant must produce the following documents for a home loan sanction letter.
- Identification Proof: Aadhaar Card, PAN Card, and Passport.
- Residential Proof
- Passport – Size Photograph
- Bank Statements for the last six months.
- Salary Slips for the last three months
- Documentation of Property
- Income Tax Return Form
Home Loan Sanction Letter vs Home Loan Approval
A home loan sanction letter is a document issued by a bank or other financial institution formally confirming that your loan application is accepted and the loan amount is sanctioned. It has all the details regarding the loan amount, interest rate, repayment tenure, etc.
On the other hand, a home loan approval is a decision made by a lender to approve a borrower’s request to purchase a home. This approval is based on the borrower’s creditworthiness and other factors such as income, debt-to-income ratio, and down payment. A borrower must have a pre-approval letter before making an offer on a home.
Digital Sanction Letter
The digital revolution has tremendously influenced the banking industry, as nowadays, one can also opt for a digital sanction letter from various banks and lending institutions. One can apply for a Digital sanction letter directly from the bank or from their home through the institution’s official website. Top financial institutions such as HDFC and SBI have established a hassle-free process for Digital Sanction letters.
This feature also allows users to review their online home loan application status. A digital sanction letter is like any other sanction letter, with the difference that it features a digital format.
Factors to Keep in Mind While Applying for Sanction Letter
Applicants must consider the following factors when filing the home loan sanction letter.
- Be fluent with the application procedure the bank has established to ensure a hassle-free loan disbursement.
- The applicant must also factor in any inconsistency in the loan amount instead of the amount applied, as the loan amount sanctioned concerns their credit history.
- The applicants must review all the details provided in the document, including the interest rates for the sanction letter.
- They are also required to produce any additional documents before the validity of the sanction letter ends.
- Applicants must ensure the authenticity of the property they plan to acquire. It is crucial as their loan application can be rejected in failure to do so.
FAQs For Sanction Letter
The home loan sanction letter's validity concerns the lending institution. Generally, it varies between one to three months.
If the applicant does not meet the requirements established by the bank, their application can be revoked from the home loan sanction letter.
A home loan sanction letter is a formal document issued by a lender to a borrower confirming that the lender has approved the loan amount and the terms and conditions of the loan. A pre-approved home loan is an offer made by a lender to a borrower before a loan application is made based on the borrower's credit score and other factors.
No, a home loan sanction letter is not mandatory to buy a home. It is only necessary if you are taking out a loan to finance your purchase.
No, a home loan sanction letter does not guarantee a home loan. It indicates that a lender has reviewed the borrower's application and is willing to lend the borrower an amount of money, subject to certain conditions being met.
How long is a home loan sanction letter valid?
Can a home loan sanction letter be revoked?
Is a home loan sanction letter the same as a pre-approved home loan?
Is a home loan sanction letter mandatory to buy a home?
Is a home loan sanction letter a guarantee of a home loan?
