A Step By Step Guide on Home Loan Disbursal Process

When buying a home, securing a home loan is a major financial step. Home loan disbursement refers to the process by which the lender releases the sanctioned loan amount to the borrower or directly to the property seller. Understanding this process is crucial for borrowers in India, as it determines the timing of fund transfer, ensures smooth property possession, and helps avoid delays or disputes.

Being aware of the home loan disbursement process also allows borrowers to plan their finances better, coordinate with builders or sellers, and comply with all documentation requirements for timely release of funds.

Step By Step Guide on Home Loan Disbursal Process

Home loan disbursal is the stage when the lender releases the sanctioned loan amount for your property purchase. Understanding each step helps borrowers in India ensure smooth processing, avoid delays, and manage finances effectively during the home buying journey.

Step: 1. Loan Application and Approval

The first step in the housing loan disbursement process is applying for the loan. This involves:

• Submitting an application to the lender with personal and financial details.
• Providing documents such as:
  • Identity and address proof
  • Income proof (salary slips, bank statements, tax returns)
  • Property-related documents
  • Credit score report

Once these documents are submitted, the lender will review them to determine your eligibility. This is where a loan disbursement process in banks or financial institutions differs - some may process applications faster, while others may take longer.

After verification, if you meet the lender’s criteria, you will receive a sanction letter containing the following details:

• The approved loan amount
• The interest rate
• The loan tenure
• Terms and conditions

This, being a crucial document, must be sorted out to indicate approval of the loan before the disbursement of funds is processed.

Step: 2. Property Verification and Loan Agreement

Before releasing any funds, the lender will verify the property details. The lender’s legal team will check:

• The property’s legal status to ensure there are no disputes.
• The builder’s credibility (for under-construction properties).
• The ownership documents to confirm the seller’s legitimacy.

Once you have completed these checks, you should sign the agreement for a loan. This will legally tie you to the terms of the loan and indicate your concurrence with the repayment timeframe, rate of interest and repayment period.

Also Read: Different Types of Home Loans

Step: 3. Understanding the Down Payment

A down payment is the portion of the home’s cost that you need to pay upfront. The lender does not cover the entire cost of the property. The down payment meaning is simple - it’s your financial contribution towards the purchase.

How Much Do You Need to Pay?

• If the property value is up to INR 30 lakh, the lender can fund up to 90% of the amount. You need to pay at least 10%.
• For properties between INR 30 lakh and INR 75 lakh, the lender funds up to 80%, requiring a 20% down payment.
• For properties above INR 75 lakh, you must arrange at least 25% as a Home Loan down payment.
• For example, if you are buying a house worth INR 50 lakh, you must arrange at least INR 10 lakh as the down payment on a house.
• A higher Home Loan down payment means lower EMIs and interest payments. If possible, contributing a larger sum upfront can reduce the overall loan burden.

Step: 4. Loan Disbursement Process and Stages

Once all documents are verified and the down payment is made, the lender will begin the loan disbursement process. This process depends on whether the property is ready to move in or under construction.

Disbursement for Ready Properties

In ready-to-move-in houses, the lender hands in the full loan at once and directly to the seller or builder as per the terms agreed on.

Disbursement for Under-Construction Properties

For properties under construction, the housing loan disbursement stages happen in phases. Funds are released in instalments based on the progress of the construction. This is called part-disbursement and ensures that funds are used appropriately.

Once certain construction milestones are completed, payment is usually made when the builder sends a formal request to the lender, and the lender then releases funds.

Also Read: Home Loan: All You Need to Know – Godrej Capital

Factors That Can Delay the Disbursement Process

While the home loan disbursement process is straightforward, delays can occur due to:

1. Documentation Issues

• Incomplete or Incorrect Documents: Missing paperwork, incorrect forms, or mismatched details can hold up verification.
• Verification Delays: Delays in KYC, income proof, or property documents verification can push back disbursement.
• Incorrect Bank Details: Errors in account information may cause fund transfer failures.

2. Processing and Technical Factors

• Bank Processing Times: Internal bank procedures and approvals can add time before disbursement.
• Technical Issues: System glitches or delays in online processing may affect fund release.

3. Loan-Specific Factors

• Loan Type: Loans for under-construction properties or special schemes may involve additional checks.
• Loan Amount: Higher loan amounts often require extra scrutiny, leading to longer processing times.

4. Other Factors

• High Loan Demand: Peak property seasons may slow down bank processing due to workload.
• Changes in Loan Terms: Modifications in interest rates, tenure, or repayment schedule can delay approval.
• External Factors: Legal disputes, builder credibility issues, or market conditions may impact timely disbursement.

After Home Loan Disbursement: What Next?

Once your home loan is disbursed, it’s important to understand your responsibilities as a borrower to ensure smooth repayment and maintain financial health. Proper management after disbursement helps avoid penalties, maintain a good credit score, and plan your finances efficiently.

Key Responsibilities After Disbursement

• EMI Payment Schedule: Start paying EMIs as per the schedule mentioned in your loan agreement. Ensure timely payments to avoid penalties and maintain a healthy credit history.
• Pre-EMI Interest (for Partial Disbursement): If the loan is disbursed in stages for an under-construction property, you may be required to pay pre-EMI interest on the disbursed amount until full possession.
• Maintain Creditworthiness: Avoid taking new high-value loans or defaulting on existing obligations, as it may affect your repayment ability and future loan eligibility.
• Track Loan Statements: Regularly check your loan statements for accuracy in EMI deductions, interest calculations, and principal repayment.
• Consider Prepayment or Foreclosure: If finances allow, prepaying part of your loan can reduce interest burden and shorten tenure.

Following these steps ensures a smooth home loan repayment process and helps you manage your finances effectively after disbursement.

Also Read: What does New Tax Regime Say About Home Loan Tax Benefit?

The Bottom Line

Understanding the Home Loan disbursement process is crucial for a stress-free home purchase. From applying for a loan to making the down payment, every step requires planning and preparation.

By ensuring all documentation is in order and choosing a reputable lender, you can speed up the loan disbursement process and move into your dream home sooner.

Apply for the Loan to get started on your journey to homeownership!

If you want to calculate your monthly EMIs accurately without putting in a lot of mental labour, use an Home Loan EMI Calculator. This will definitely make calculating EMIs a cakewalk for you.

FAQs

Q.1. What is the next step after loan disbursement?

A. After the loan disbursement process, the next stage is to repay the loan amount monthly. This is critical to your financial health and credit score.

Q.2. Can a loan be cancelled after disbursement?

A. Once a loan has been disbursed, cancelling it is difficult but possible in certain situations. The process depends on the lender's policies and the stage at which cancellation is requested. You will be charged a fee and will have to return the entire loan amount to the lender as well.

Q.3. How can I track my loan disbursement?

A. Yes, you can track your loan disbursement online through your lender's website.

Q.4. What are the methods of loan disbursement?

A. The lender directly credits the approved loan amount into your bank account through a direct deposit. The other method is the amount being disbursed to your account through a cheque.

Q.5. How long does it take for a loan disbursement process?

A. It normally takes a few hours to a few days for you to receive loan funds. This time frame is determined by various factors, like the completeness of the documents you provide and how the lending institution verifies your details.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com