When you are trying to buy a house, there is a lot of research, effort, time, and investment that goes into the process, right from dreaming about it to taking a loan to actually buying the house. Once your dream sounds realistic, one of the first steps is to look for the right home loan. But this process isn’t just about checking home loan interest rates and comparing loans, it is also about conducting thorough research on home loans.
It is important to get familiar with all terminology related to home loans. Two of the most important terms are home loan approval and home loan disbursal. Let’s find out what they mean and why you must not get confused between the two.
There is a complete process right from scouting for a loan to applying for it to getting it sanctioned to finally getting the disbursal amount in your account.
What is home loan approval/sanction?
Before this stage, you would have submitted all relevant documents to the lender/bank. These would include everything from your personal ID proofs to your credit history to your other relevant financial records. This stage becomes much easier when your documents are genuine and proper. If they are, then you can get a loan approval quickly.
There’s a list of factors that influence the home loan approval decision of your lender. These are:
- Job security/stability
- Capacity to repay
- Credit score
After all of this scrutiny, the loan is sanctioned or approved, and you receive a loan sanction letter. The letter is essentially proof that you are eligible for the home loan. It is not the final loan agreement, and the amount sanctioned as per the letter could be lower than the amount you had applied for. The letter includes a lot of details including home loan interest rates.
What is home loan disbursal?
Home loan disbursal is a very different process from home loan approval. The disbursal process starts once the approval process is completed. Disbursal happens in three stages.
- Document submission
At this stage, you will be required to submit a self-attested copy of the offer letter, and all relevant property documents for the lender to start the process of disbursal of home loan.
- Inspection of documents
Next, the lender’s legal team will carefully inspect the documents submitted by you, which include the complete chain of property. Once the legal team clears it and releases a report, it is sent for technical inspection. The report also includes a list of additional documents needed for disbursal of the home loan amount. Once the technical inspection is done, the loan proceeds to the final stage.
Next, the approved loan amount is disbursed by the lender in a single instalment or otherwise as per the terms and conditions agreed upon. Disbursal is usually either partial or total.
A full disbursal is made when the lender provides the entire loan amount at one go. If you’re purchasing the house from a builder, a full disbursal cheque will be given by the bank in the name of the builder. A partial disbursal, on the other hand, is made in multiple stages. This is usually done for under-construction houses. The lender releases the amount in instalments based on the stage of construction that the house has reached.
The amount would be credited to your bank account. With online loan facilities, nowadays this process has become swifter and easier. It could be done within a day.
Difference between home loan approval and home loan disbursal
As per the explanations mentioned above, it is clear that while loan approval is a proof of the loan you are going to receive, disbursal is actual credit of the amount in your account. Home loan approval is the paperwork you need for disbursal. The difference is quite clear, and there need not be any confusion after this knowledge.
Once your loan has been disbursed, make it a point to repay all instalments on time to avoid further complications and penalties. A good way to keep track of the repayment schedule is a home loan amortization schedule.