What You Need to Know About Your Home Loan Sanction Letter
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What You Need to Know About Your Home Loan Sanction Letter

  • Highlights

  • Sanction letters are offered based on eligibility

  • They contain specifics about your home loan

  • Sanction letters are not final loan agreements

  • Sanction letters have a fixed validity

When you apply for a home loan, your lender will need you to complete some paperwork and provide proof relating to 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’ve been approved for the loan. Here’s what it is and why it is important.

Sanction letters are based on your eligibility

Sanction letters are offered by lenders once they have processed your application and decided you are eligible for a home loan. They may offer you the exact terms you applied for, or adjust those terms according to your eligibility as a candidate, based on your income, your credit history, any outstanding debts you may have at the time of your application and even your age, which will determine whether your income and expenses are slated to increase or decrease.

Lenders will also take into account the current value of the property that will be mortgaged, as well as the potential for appreciation in its value. So, it is important that you read the sanction letter carefully.

Common contents of a sanction letter

The home loan sanction letter provides details about the loan agreement, namely the total loan amount being sanctioned, the home loan interest rate that is applicable as well as the base rate on which it is being calculated, whether the loan plan is a floating or fixed interest rate plan, and the total loan tenor. 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.

Six Things to Remember Before Taking a Home Loan

A sanction letter is different than a final loan agreement

It is important to remember that a sanction letter does not state 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 important to know that sanction letters are only valid for a specified time period—often six months, though it depends on the lender. After the stated time period 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, bear in mind that many property developers or buyers require you to present a copy of the sanction letter to them before finalizing a purchase.

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

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