Home Loan Disbursement Process in India: Stages, Types & How to Avoid Delays

When it comes to buying a home of any sort, the simplest and fastest way to arrange funds is to secure a home loan which is now available at much reasonable rates. Since buying a home involves a large sum of money, not everyone has that much funds ready for payment. This is why most people look towards a home loan to fulfil their home-buying needs. But before you apply for a home loan, it is necessary to be aware of the entire procedure so that you can take the right approach towards home loan procurement.

In this following post, you will get to know everything about the disbursal of home loans. For example, the process will be explained in the form of steps that would be much easier to understand.

What is Home Loan Disbursement?

Home Loan Disbursement Process, For a home loan borrower, seeking a home loan may seem easy but from the lender’s perspective, it is quite complex. Every home loan application goes through scrutiny before the home loan is sanctioned and the amount is disbursed. Home loan disbursement is one of the stages of home loan sanction. Put simply, it refers to the discharge of the sanctioned amount to the beneficiary’s account (property seller or the builder). In the following part of this post, we will the home loan disbursement process.

How The Home Loan Disbursement Process Is Started?

For a home loan borrower, home loan disbursement is something necessary to know as it is the final step of securing a home loan. Hence, before the loan is disbursed, all other related procedures must be completed in a prescribed manner. For example, all the identity, address and income-related documents are submitted at the time of application, they are checked and verified in all possible ways, then a home loan sanction letter is issued, and eventually, the loan is disbursed. Overall, it is a highly complex process and banks follow it very strictly to ensure that all things remain valid both for the lender and the borrower.

Home Loan Disbursement Stages

Stage 1: the loan disbursement is the final step of the entire home loan application. The initial step of the process is to submit the home loan application followed by the allotment of loan sanction letter, and last is home loan disbursement. However, this home loan disbursement may have several stages altogether that you will get to know here in this post.

The loan borrower will receive a sanction letter from the bank once your home loan disbursement is approved. This letter will be inclusive of the disbursed amount, payment date, loan tenure, interest rate, and the validity of the allocation letter.

Stage 2: After the receipt of the letter approving the authorization of the house loan disbursement, the borrower should present the bank representative with an "own contribution receipt". Once it is done, the bank or lender will provide you with the date of the initial instalment. Before the start of the final payment disbursement, the borrower would be asked to produce various documents such as the allotment/sanction letter, encumbrance certificate, agreement copy and credit facility receipt. These docs are used by the bank to validate the legality of the property.

The bank will process the home loan pay-out amount following the fulfilment of all requirements and by the terms and conditions of the sanction letter. The interest rate specified in the sanction letter does not necessarily oblige the bank to pay it. The bank will produce a fresh sanction letter since it is allowed to charge interest based on the day the money is disbursed, not the day specified in the initial sanction letter.

Stage 3: Based on the borrower’s credit profile and the level of property development (ready-to-move or under construction, the bank may pay the entire sum at once or in instalments as per the payment plan. The whole amount of the mortgage will be disbursed by the bank if the property is ready for possession. In most cases, borrowers with an excellent track record and a high credit score are qualified for a pre-approved house loan. 

Types of Home Loan Disbursement Available in 2024

Home loan applicants can apply for either of the following 3 types of disbursements in 2024 - 

1. Full Disbursement

With this type of loan, you receive the entire loan amount at once, similar to receiving a lump sum. For example, a personal loan for a fixed amount is a common example of this type. Once approved, the lenders transfer the complete sum into the borrower's account. 

Example: Ananya applies for a loan of ₹500,000 to fund her home renovation project. After the loan approval, the bank transfers the entire amount of ₹500,000 into Ananya's bank account in one go. This means Ananya receives the entire loan amount upfront, allowing her to immediately start her renovation work without worrying about arranging funds gradually.

In this real-life example, Ananya's experience of receiving the complete loan amount upfront mirrors the concept of a full disbursement loan. Just like receiving a lump sum, Ananya gets the entire loan amount at once, which she can utilize as needed for her home renovation project.

2. Partial Disbursement

The loan amount is divided into smaller portions and released based on certain conditions. This method is commonly used for loans related to home construction or education, where funds are disbursed as the borrower reaches specific milestones or meets academic terms. 

Example: Suppose Mr. and Mrs. Sharma have taken out a loan from a bank to build their dream house. The total loan amount sanctioned by the bank is Rs. 50 lakhs. However, rather than receiving the entire amount upfront, the bank opts for a partial disbursement method.

Here's how it works:

• Foundation Stage: The first installment, say Rs. 10 lakhs, is disbursed when the foundation of the house is completed. This might involve verification by a bank-appointed engineer or architect to ensure that the construction has reached a specific milestone.
• Structural Stage: The second installment, another Rs. 15 lakhs, is released once the structure of the house, including walls and roofing, is completed up to a certain level. Again, verification and approval from the bank's representative are necessary.
• Finishing Stage: The third installment, Rs. 20 lakhs, is provided when the house is near completion, including the installation of doors, windows, flooring, and other finishing touches.
• Final Stage: The final installment, Rs. 5 lakhs, is disbursed upon the completion of the entire construction and obtaining the necessary certificates from municipal authorities ensuring compliance with building codes and regulations.

By disbursing the loan in stages, the bank mitigates its risk and ensures that the funds are used for the intended purpose of constructing the house. For Mr and Mrs Sharma, this partial disbursement method provides them with the necessary financial support at each crucial stage of building their home, allowing them to manage their expenses more effectively and ensuring that the construction progresses smoothly.

3. Direct Payment Disbursement

In situations involving student loans, it is common for the lenders to send the funds directly to the educational institution or service provider. This is a way to ensure that the money is being used for its intended purpose. 

Example: Let's say there's a student named Priya who comes from a rural area and has been awarded a scholarship by the government to cover her college tuition fees. Instead of handing the scholarship funds directly to Priya, the government disburses the money directly to Priya's college.

Here's how it works:

1. Priya applies for the scholarship and meets all the eligibility criteria.
2. Upon approval, the government disburses the scholarship funds directly to Priya's college bank account.
3. Priya's college then deducts her tuition fees from the scholarship amount and disburses the remaining funds for other educational expenses, such as books, accommodation, or transportation, directly to Priya.

By implementing direct payment disbursement, the government ensures that the scholarship funds are used solely for educational purposes and are not misused or diverted elsewhere. This method adds transparency and accountability to the distribution of financial aid, benefiting both the students and the educational institutions.

Also Read: Different Types of Home Loans Available in India

Key Players in the Home Loan Sector in 2024

You can choose between banks and non-banking finance companies (NBFCs) for a home loan. Housing Finance Companies (HFCs) also fall under NBFCs. To make a decision, compare the tenure, interest rates and processing fees offered by the banks and NBFCs. 

Consider looking into the leading housing finance companies in the country listed below. 

• HDFC Housing Finance
• Dewan Housing Finance Limited (DHFL)
• LIC Housing Finance Limited
• Cholamandalam Housing Finance
• Indiabulls Housing Finance Limited
• India Home Loan Limited
• L&T Housing Finance Limited
• Sahara Housing Finance
• PNB Housing Finance Limited
• Akme Star Housing Finance Limited
• IIFL Housing Finance Limited
• Repco Home Finance
• GIC Housing Finance Limited
• Aavas Financiers Limited
• Sundaram Home Finance
• TATA Capital Housing Finance Limited

Also Read: Difference Between Banks and NBFCs

Common Mistakes to Avoid During Home Loan Document Submission

Approaching the home loan application process with caution and attention to detail is crucial to increase your chances of success. Mistakes during document submission, no matter how small, can have significant consequences when applying for a home loan. To avoid these consequences, be mindful of the following common mistakes during home loan document submission:

• It is essential to make sure that your signature on the home loan application matches the proof of signature you provide such as your driver’s license, passport or any other document. Consistency between these signatures is important as discrepancies can be seen as suspicious by lenders. Be sure to double-check and ensure that your signature matches the official proof to avoid any issues with your application. 
• When applying for a home loan, it is important to ensure you have all the necessary documentation in place. Many applicants make the mistake of submitting incomplete or missing documents, which can delay the approval process. Lenders typically require the following documents to assess your eligibility for a home loan - 
  • Identification proofs
  • Tax returns
  • Bank statements
  • Income statements

Before submitting your application, double-check the lender’s checklist to make sure you have gathered and included all the required documents. 

• You have to make sure that all the documents provided are clear and visible. Lenders need these documents to gather data related to income, obligations, legal & technical aspects of the property and clear copies will expedite the process. 
• It is extremely important to be honest when applying for a home loan. Any misleading or false information about your financial situation or employment history can result in serious repercussions. Lenders verify all the details provided and any inconsistencies could lead to rejection or legal action. Always be transparent and truthful when applying for a loan. 

Future Trends in Home Loan Disbursement in India

Utilizing modern technology can enhance the efficiency of home loan procedures and significantly reduce the time needed to disburse such loans. Customers may be willing to pay a slightly higher interest rate for home loans if it means faster and more convenient loan processing from their offices or homes. 

1. When applying for a home loan, the bank verifies the information provided in the loan application to evaluate your repayment capacity. This process requires bank officials to visit the borrowers or vice-versa. However, there is already a vast amount of consumer data available within the banking system and credit bureaus. Lenders should use this data to verify a borrower’s credentials and repayment capacity, saving time and reducing/eliminating in-person meetings.
2. Banks often require borrowers to send additional documents via mail after the initial process, creating a time-consuming back-and-forth process. To streamline this, banks can establish a specific set of documents that borrowers can digitally upload, reducing the need for physical mail and enhancing efficiency. 
3. The bank verifies property before loan disbursal. It involves costs and time. For under-construction property, the bank scrutinizes project location, quality, and stage of construction based on parameters. Geotagging can make the process efficient. It adds geographical data to media, maps properties, and tracks construction status. Verification can be done via video apps for a faster and hassle-free process. 

Also Read: 7 Major Benefits of Closing A Home Loan Early

FAQs

1. What Are The Existing Home Loan Interest Rates?

The existing home loan interest rates hover between 8 and 11% in most cases.

2. What Time Does It Usually Take To Get A Sanction On A House Loan?

Once you submit the required documents, getting a home loan approved by most banks just takes 5 working days.

3. Can I Receive Online Permission On A Home Loan Right Away?

Yes, today borrowers can get immediate in-principle approval. However, after reviewing all documentation and procedures, a final punishment will be granted.

The Conclusion

Whether you are looking to buy a flat, an apartment, a villa, a residential plot or any other property, the application for a home loan remains the same. So, if you are looking to get a home loan in Delhi, go through the home loan disbursement procedure to understand the basics and plan your home buying accordingly.