What is a Sanction Letter and its Role in Getting a Home Loan?

Are you planning to buy a house? If yes, then it is vital to have a clear and detailed understanding of the home loan procedure, which is generally divided into 3 stages, i.e., application, loan sanction, and disbursal. Amongst all these stages, loan sanction is an important one as this is the stage where the loan is either approved or rejected. After the home loan application procedure begins, the bank verifies the documents of the applicant and makes a decision to approve or reject the loan. The loan is approved if and only if the specified criteria are met flawlessly. Once the loan is approved, the lender will issue a Sanction Letter, which is proof that you are eligible for the home loan. 

So, if you don’t know much about sanction letter and its role in getting a home loan, then this guide is for you! Read till the end for a better understanding of the topic. 

What is a Sanction Letter?

A Sanction Letter is one of the most critical documents in the home loan process. No matter whether you are taking a loan for building a big house or a small house, Sanction Letter plays a significant role from start to finish. A Sanction Letter is a document provided by the lending financial institution or bank to the borrower. This document states that the home loan has been approved. In addition, it contains the terms and conditions on the basis of which the loan will be offered to the applicant. 

When it comes to the details stated in this document, a Sanction Letter involves vital information such as:

- Amount of home loan

- Special schemes, if applicable

- The applicable rate of interest, i.e., fixed or floating

- Loan repayment tenure

- Mode of loan repayment

- Pre-EMI or EMI details

- Validity of the home loan Sanction Letter

- Tax benefits 

- The base rate for interest calculation

Once the applicant receives the home loan Sanction Letter, the bank or lender institution sends a certified offer letter mentioning the crucial details related to the home loan. The applicant is then required to sign the acceptance copy and submit it back to the bank or financial institution. At this stage, you are required to check all the details given in the Sanction Letter thoroughly and understand the terms and conditions. 

Nowadays, the home loan application process has been simplified, with many financial institutions and banks offering digital modes to apply for an e-home loan. They moreover extend the opportunity to get a Digital Home Loan Sanction Letter. As the name implies, a Digital Home Loan Sanction Letter is a digital form of the home loan approval document that the bank issues before sending the final home loan agreement to the applicant. 

Documents Needed for the home loan Sanction Letter

A bank or financial institution will ask you for certain documents to be submitted before issuing a sanction letter. The documents may involve:

1. Identity proof like Aadhar Card, PAN Card or Passport

2. Passport-sized photograph of the applicant

3. Proof of residence

4. Recent three months salary certificates

5. Recent six months bank statements

6. Property related documents

7. Latest income tax return form

In addition to all these, the applicant might have to provide multiple financial details and pay processing charges. 

How is Sanction Letter different from In-Principle Approval and Disbursement Letter?

Many people often confuse a Sanction Letter with In-Principle Approval and Disbursement Letter, but they are all different in reality. In this section, we will clear out the differences between them.

In-Principle Approval refers to the procedure whereby the lender assesses the financial condition of the applicant and gives an In-Principle Approval letter. This letter guarantees that the lender will provide the loan, subject to the successful verification of the documents. In general, lenders offer the In-Principle Approval letters for pre-approved loans. In addition to this, they also charge a fee that is later on adjusted in the total loan processing charges. The validity of the letter ranges from 3 to 6 months, depending on the lender. 

In contrast, a Sanction Letter for a home loan is an official document stating that you have become eligible to avail of the specific loan amount. The terms and conditions stated in the letter remain valid till the date specified in the letter. It is important to note that the lending institution can offer the original terms applied or can modify them on the basis of the loan eligibility of the applicant. 

However, a Sanction Letter is not the legal approval of the home loan, and there are some formalities to be fulfilled till the home loan is disbursed. Once the loan offer letter is accepted successfully by the applicant, the lender proceeds to check all the property-related papers submitted by the applicant. The moneylender will keep all the documents as security against the home loan until the time the applicant repays the entire loan amount. The bank or financial institution then conducts a legal and technical verification of the real estate that the applicant is planning to buy. Once this step is completed, the legal representative of the moneylender finalises the loan documents, and the final loan agreement is drafted, stamped, and signed. Finally, the loan is then disbursed. 

When it comes to Disbursement Letter, the Disbursement Letter contains the total loan amount paid by the money letter. Furthermore, it might also involve information about the home loan insurance amount, if applicable.  

Importance of Home Loan Sanction Letter

Do you know why exactly a home loan Sanction Letter is essential? If not, then this section of the article has got you covered! Well, before receiving a formal home loan agreement, the Sanction Letter serves as solid proof of your loan eligibility. In simple words, the Sanction Letter proves that you are eligible for a home loan. Furthermore, this letter gives you a complete idea about your home loan, involving the EMI you have to pay every month. In this way, it helps you decide whether to proceed further with the same decision or reconsider it, and this depends upon your financial situation. 

Apart from this, a Sanction Letter is one of the essential documents that you might have to submit to a housing society or a developer during your home buying process. In addition to this, a Sanction Letter serves as proof in case any legal dispute arises between the lender and the borrower in the future over breach of the terms and conditions stated in the agreement. 

Key points to note relating to the Sanction Letter

Below mentioned are the key points that one must note relating to the Sanction Letter:

1. The home loan applicant must know that the amount of loan sanctioned for the home can be lower than the loan amount that he/she has actually applied for. This entirely depends on the credit history of the applicant. 

2. It is important for the applicant to figure out the home loan application process of the financial institution before he/she applies for a home loan. This will eventually make the loan procedure easy.

3. Additional documents needed for a home loan application must be provided before the validity of the sanction letter ends.

4. It is important to verify the details of the real estate that you are planning to buy. Banks are most likely to reject the home loan application if the property does not have a clear title or if there is a lack of approval from the real estate builder. 

5. Before signing the acceptance letter, the applicant must carefully check all the given details in the document, involving the rate of interest.

Frequently Asked Questions (FAQs)

Ques. How long does a home loan sanction take?

Ans. In general, the home loan sanction can take somewhere between 3-4 weeks if you successfully submit all the required documents. However, in case the documents are not submitted within the stipulated time, it may take more time than usual. 

Ques. How do you sanction a home loan? 

Ans. A home loan is sanctioned in three steps that begin with filling the home loan application form, followed by documents and eligibility verification. Finally, it ends with the allotments of the home loan Sanction Letter. 

Ques. What causes the delay in the Sanction of Home Loans?

Ans. A delay in the sanction of home loans can be caused by incorrect information filled on the application form. In addition to this, it may also be caused by failure to fulfill the documentation requirements of the moneylender. 

Ques. How do I know if my home loan is approved?

Ans. The first indication of a home loan approval is the allotment of the home loan Sanction Letter. After receiving the home loan Sanction Letter, you are required to fulfil the lender-specific formalities. Once the loan formalities are successfully completed, the amount of the home loan is disbursed. Later, you can check your home loan status on the online portal of the moneylender and can know when your home loan is approved. 

Ques. What is the validation period of a home loan Sanction Letter?

Ans. The validation period of a Home Loan Sanction Letter may vary on the basis of your bank or financial institution. However, in general, a home loan Sanction Letter is valid for 6 months. 

Also Read: Best Banks to get Home Loan from in 2022