3 min read
25 May 2021

A home loan sanction letter is a document issued by a lender such as a financial institution or a bank. This letter confirms the lender's intention to provide a loan to the borrower. This letter contains details like loan amount, interest rate, repayment period, and other terms and conditions.

When you apply for a home loan, your lender will need you to complete some paperwork and prove your identity, financials, and property.

Since home loans are usually of a substantial amount, it is important that everything is in order for both you and your lender. Before you are given the final loan agreement, you will be issued what is known as a home loan sanction letter informing you that you have been approved for the loan. Here is what it is and why it is important.

Sanction letters based on your eligibility

Lenders offer sanction letters once they have processed your application and decided you are eligible for a home loan. Depending on your eligibility criteria, they either offer you the exact terms you applied for or adjust those terms accordingly.

They may offer you the exact terms you applied for or adjust those terms according to your eligibility as a candidate.

Lenders will also take into account the current value of the property and the potential for appreciation in its value. So, you must read the sanction letter carefully.

Common contents of a sanction letter

The home loan sanction letter provides all crucial details about the loan agreement. This includes the total loan amount being sanctioned, the interest rate applicable, the total loan tenure, and more.

The components of a home loan sanction letter may vary depending on the lender, but typically include the following:

  • Borrower and lender details: The name and address of the borrower and the lender
  • Loan amount: The amount of the loan that the lender is willing to sanction, including any processing fees or charges
  • Interest rate: The interest rate applicable to the loan, and whether it is a fixed or floating rate
  • Loan tenure: The duration of the loan, which may vary depending on the borrower's repayment capacity and other factors
  • Repayment schedule: The repayment schedule for the loan, including the frequency of payments, the amount of each payment, and the due dates.
  • Prepayment and foreclosure charges: Any charges or penalties that may be levied by the lender if the borrower wishes to prepay the loan or foreclose it.
  • Security or collateral: Details of the property or assets that are being offered as security or collateral for the loan.
  • Validity period: The period during which the borrower can avail of the loan, typically ranging from 3 to 6 months.
  • Other terms and conditions: Any other terms and conditions that the borrower and lender have agreed upon, such as insurance requirements, processing fees, late payment charges, or other fees.

It is important for the borrower to read and understand the sanction letter thoroughly and clarify any doubts or concerns with the lender before signing the document.

Based on the terms stated in the sanction letter, you can use a home loan EMI calculator to check your potential EMIs. Accordingly, you can decide whether to take the loan under the stated terms, negotiate with the lender, or shop around for a better offer. The sanction letter may also include individual terms that the lender may wish to include—these will vary from one lender to another, so be sure to go through them carefully.

How is a sanction letter different from a final loan agreement?

It is important to remember that a sanction letter does not state the legal approval of the loan. You, as an applicant, are still subject to background checks and will have to provide additional documentation before the final agreement is made. It is also essential to know that sanction letters are only valid for a specified period – often six months, though it depends on the lender.

Once the stated time is up, you can no longer accept the loan offer based on the terms stated in the sanction letter and will have to make an entirely new application. Finally, consider that many property developers or buyers require you to present a copy of the sanction letter to them before finalising a purchase.

So, once you receive your home loan sanction letter, be sure to read it carefully. If you need help to decipher it, do not hesitate to talk to your lender or financial adviser. Then get ready to submit the documents that your lender asks you to take the process forward.

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What happens after you receive the loan sanction letter?

After receiving the loan sanction letter, the bank or lender will send you a certified offer letter that includes essential details about the home loan. You need to sign an acceptance copy of the offer letter and submit it to the financial institution. It's crucial to carefully review all the information in the sanction letter and understand the terms and conditions at this stage.

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