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’ve been approved for the loan. Here’s what it is and why it is important.
Sanction letters are based on your eligibility
Lenders offer sanction letters 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.
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.
Read Also: A Complete Guide to Applying for a Home Loan
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 tenor, and more.
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.
A sanction letter is 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 finalizing a purchase.
So, once you receive your home loan sanction letter, be sure to read it carefully. If you need help to decipher it, don’t hesitate to talk to your lender or financial advisor. Then get ready to submit the documents that your lender asks you to take the process forward.
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