What is a Home Loan Sanction Letter? Everything You Need to Know - Loan Trivia


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Tuesday 2 July 2024

What is a Home Loan Sanction Letter? Everything You Need to Know

Applying for a home loan was a lengthy process in the past. But in today’s digital landscape, the loan application journey has become smoother. There are three stages of the home loan process namely, application, sanctioning of loan and disbursal. 

After home loan application, sanctioning of loan matters. Upon approval of the application, individual borrowers are provided with a loan sanction letter after inquiring credit score and credit history. This letter outlines the terms of the home loan.

One can read on to understand what is a home loan sanction letter and how it matters. 

What is a home loan sanction letter?

A home loan sanction letter is the document that financial institutions lend to borrowers applying for a home loan. Borrowers receive this letter once they qualify for a home loan. 

Before sending this sanction letter to the borrower, lenders assess the repayment behaviour, credit scores and income. Alongside, the submitted documents are also verified with the market value of the property. 

This sanction letter outlines the loan amount a borrower is eligible for which includes the tenor of the loan and rate of interest. It is important to keep in mind that a loan sanction letter doesn't indicate loan approval. 

Once a borrower receives this sanction letter, it indicates that the loan process can be started. Thus, a home loan sanction letter details the loan eligibility of the borrower along with the terms and conditions.

What is the importance of a home loan sanction letter?

The home loan sanction letter is an essential document in several aspects. Here is a detailed overview:

  • The sanction letter provides a detailed overview of loan repayment. Borrowers accordingly can negotiate with the lender and agree to a better deal.

  • Many real estate developer wants a copy of a loan sanction letter before finalising any deal.

  • Borrowers get an estimate of the EMI amount to be paid every month from the letter, thereby, allowing them to make adjustments to monthly expenses.

  • A sanction letter is a solid proof of communication between the lender and borrower about approved loan details. This thereby prevents the occurrence of any dispute in the future.

What is the home loan sanction letter format?

A home loan sanction letter is an important document that entails the following necessary details:

  • Rate of interest for a home loan

  • The total loan amount sanctioned

  • Kind of interest rate applicable (fixed or floating)

  • Validity of the letter

  • EMI amount payable

  • Tenor of the loan 

  • Special conditions to be fulfilled before disbursement

  • Other terms and conditions

What are the documents required for a home loan sanction letter?

There is minimal documentation involved in the sanction letter of a home loan. Here are the documents essential to keep ready for easy approval of the sanction letter:

  • KYC documents

  • Mandatory documents that include Form 60 or PAN Card

  • Income Proof

  • Proof of Residence

  • Property related documents

  • Financial records

Many financial institutions provide pre-approved offers to existing customers on products such as home loan and loan against property. Doing so ensures a smoother and faster credit application process. One can visit the official website and check out their pre-approved offers entering all necessary information. 

Gone are the days, when a borrower needs to visit multiple times for a home loan application. With online applications, it is possible to apply for a home loan and receive approval without even visiting the lender. A home loan sanction letter is a green signal to a borrower to purchase a home hassle-free. Proper structuring of the sanction letter helps to maintain clarity and transparency in the loan process.

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