Home Loan Procedure: Step-by-Step Guide for First-Time Home Buyers

The first step in the home loan procedure is to assess your finances and explore different loan options. Before applying for a home loan, take stock of your income, monthly expenses, outstanding debts, and savings.

Various loan options—such as fixed-rate loans, adjustable-rate loans, government-sponsored loans, and conventional loans—are available, each with different interest rates and terms. Using a home loan eligibility calculator can help you determine how much you can borrow and set a budget for your potential home.

To proceed with your home loan process, you will need to provide several documents. These typically include:

• Government-issued ID (a scan or photocopy of the identification document, such as an Aadhar card or PAN card)
• Proof of income (tax returns or bank statements)
• Employment verification
• Credit history
• Previously identified property documents

Along with these documents, you need to check your credit card score or cibil score as it gives an idea about your credibility, eligibility, and the interest rates that you will be offered. A score of more than 700 typically qualifies you for better loan conditions.

Pre-approval during the process of loans helps you understand how much you can borrow. Fill in the loan documents with your financial data to get a pre-approval letter from the lender. This letter makes you a more credible buyer and strengthens your position when making offers on a home.

The next step in the home loan process is to begin house hunting after obtaining pre-approval. You can even coordinate with a reliable real estate agent who can assist you in finding a property for purchase within your pre-determined price range. Once you find the perfect home, make an offer and finalise the purchase contract.

Now that you’ve selected a property, it’s time to formally apply for the loan. Fill out an official loan application, providing details about the property, your personal and financial data, and the accompanying paperwork.

Ensure your details are accurate and complete to prevent delays in the home loan process. Along with the documents mentioned earlier, you may also need to present your educational information, employment details, income proof, details of the finalised property, and address proof for a successful home loan application.

During underwriting or discussion with the bank, your application for home loan is reviewed, your documents are checked, and the value of the property is estimated. If necessary, the lender may request additional documents or clarifications. This home loan process usually takes 2-3 days.

Banks and financial companies deal with thousands of home loan applications every day, so they evaluate all the documents to identify fraudulent applicants. To verify the authenticity of an applicant, an employee usually visits the person’s house and workplace to ensure that all the provided details are correct and that the applicant is capable of repaying the loan with interest.

The final approval is received after the lender finishes underwriting and is satisfied with your creditworthiness and the value of the property. The lender will grant the borrower a commitment letter that spells out the conditions under which the home loan will be extended to the applicant.

When the loan gets approved, the lender sends an offer letter. This document details the loan amount approved, the rate of interest, the duration of the loan, the equated monthly EMI, and other policy implications. Review the offer letter carefully before signing to ensure you fully understand the home loan conditions.

Subsequent to the acceptance of the offer letter, the lender shall ask for the following property documentation: the property title deed, the sale agreement, the builder’s NOC (No Objection Certificate), and any other necessary legal document. The legal advisors of the lender will authenticate these documents to ensure that the property has a marketable title and no litigation.

The lender conducts a technical check of the property. A physical site inspection is done to determine the market value of the site. The representatives of the lender can also assess the quality of construction or conformity to the local code. A site estimation report is then developed to indicate the home loan amount required for the project’s implementation.

Once the legal and technical checks are complete, the lender can finalise the home loan. When the final agreement is signed, the loan amount is disbursed. In the context of home purchase, the amount is usually paid directly to the sellers or the builder; in the case of the home construction loan, it goes to the borrower’s account.

An official communication dispatch is issued confirming the disbursement made with regard to all the financing arrangements, and the planned timetable of repayment will commence per the agreed terms.

Compare the interest rates offered by different banks before beginning the home loan process. Every cent matters when it comes to the total cost of your home loan, so it’s important to choose the best deal.

There are two main kinds of interest rates: fixed and variable rates. The final decision for a home loan interest rate should depend on your financial plans and your tolerance for risk.

Depending on the period you take to repay your home loan to the bank, the monthly payment and the total interest charged will vary. As tenure decreases, monthly payments are high, but the overall interest rate will be low. On the other hand, as tenure increases, the monthly payments made for a home loan will be low, but the overall interest to be paid will be high.

The LTV ratio represents the percentage of the property’s value that the lender is willing to fund. When an LTV ratio is lower, it implies that you have to make a higher down payment, although it is likely to improve your loan’s conditions.

Ensure you are aware of all the fees associated with your home loan, including processing fees, early repayment fees, and late payment penalties. Knowing these costs at the beginning of home loan process can help you avoid surprises later on.

Most lenders demand down payments from anything between 10% and 20% of the total property cost. It’s best to prepare for this expense during home loan application and consider taking advantage of down payment assistance programs if necessary.

Check if the lender or bank offers flexibility in EMI amounts or the ability to make extra payments. Having repayment flexibility eases down a psychological burden on the borrower, as they can manage their home loan repayment based on changes in their income.

Pre-approval is a preliminary assessment based on the documents you have submitted to a bank or other financial institution, giving you an idea of how much you can borrow. Final approval occurs once the lender reviews your application and all necessary details, confirming that they are willing to finance the loan.

Your credit score is based on your previous transaction profile, which indicates your credibility in repaying the loan. A better credit score means a higher chance your loan application will be accepted while keeping the interest rate lower. However, low scores may cause high interest rates or even rejection of your application.

The bank allows you to pay the loan before maturity. However, a fee may be charged for that. Before you make additional payments, consult with your lender regarding the terms.

Processing time for home loans varies from a few weeks to a month, depending on the bank or financial institute, the verification process, and the types of formalities at the end of the lender. By constantly being in touch with the bank or your lender, you can get a clear picture of the overall time. 

Yes, tax benefits can be availed on a home loan. They are divided into two sections: tax exemption on repayment of the home loan principal and tax benefit on the interest rate for a home loan. Even joint borrowers have the option to avail themselves of tax benefits.