Those thinking of applying for a home loan have various aspects to consider. These include the loan duration, tenure, the amount that they can afford to repay and so on. Another factor worth remembering is that there are also specific roles and responsibilities of home loan lenders. In this case, they are banks and other financial institutions. They have certain guidelines as to their duties in terms of scrutinising home loan applications and sanctioning them. Here is a closer look at the same.
One of the biggest responsibilities of home loan lenders is to undertake due diligence of the property for which the home loan is being applied for. The bank has the role and responsibility to conduct a thorough legal check of the property and its documents. The bank has to ensure that all papers are legally valid and that the property has all the necessary clearances and permissions from the respective authorities. The benefit in this case for borrowers is that the due diligence will automatically lower the risks of them being taken for a ride by the developer. A bank approval for any property means that it is legally safe to purchase.
One of the biggest responsibilities and roles of home loan lenders pertains to the entire process of applying for the home loan, documentation and scrutinising and approving/rejecting applications. These are some of the core tasks that the bank has to take care of in this regard:
Taking home loan applications online/offline from potential borrowers. Providing assistance through trained representatives is another part of the process.
The bank has to collect all necessary documentation as per its outlined eligibility criteria and requirements.
The next big responsibility of the bank is to thoroughly verify all the documents and check whether the borrower is eligible for the home loan or not. The bank will not just look at the nature of employment, financial statements and overall stability of the borrower, but also his/her overall debt, credit score and repayment ability.
The bank will also verify the down payment, agreement with the development and property details thereafter.
After verifying everything, the bank has the responsibility to issue the sanction letter to the borrower after approval. This will contain the terms and conditions of the home loan along with the approved amount, interest rate, tenure and other crucial information.
Once the borrower agrees to the same, the bank has the responsibility to undertake the home loan agreement and finalise all the other paperwork.
The bank also has the responsibility to set up the payment mechanisms for home loan EMIs along with fixing the repayment dates and other aspects.
The bank also has the responsibility to disburse the home loan amount thereafter in tranches or at one go, depending on the property type, construction stage, payment plan and other terms and conditions.
Home loan lenders should provide the following to homebuyers:
Transparent information on the applicable rates of interest
Transparent details of the applicable charges and fees including processing fees, administrative and legal costs, prepayment charges/penalties, foreclosure charges and so on.
Any factor that affects the interest rate
Authenticated copies of all loan documents executed by the borrower at his/her cost
Copies of all enclosures as quoted in the loan document upon the borrower’s request
The amortisation schedule and loan agreement copy upon request
Banks cannot reject home loan applications without furnishing valid reasons behind their decisions. This is another one of their responsibilities. At the same time, they also hold the responsibility to adhere to and uphold their LTV (loan to value) ratios. It is usually 90% for homes priced at INR 30 lakh and lower and 80% for homes priced between INR 30-75 lakh. For loans above INR 75 lakh, it is usually 75%. The LTV ratio is the ratio of the total amount offered by the bank as the home loan to the property’s actual value. Banks should ensure that the LTV does not include the costs of registration charges, documentation and stamp duty.
Home loan lenders also have the responsibility to assist borrowers at any stage of the loan tenure. They are required to offer assistance with regard to accessing the interest certificate, loan account and other support services. They can also sanction top-up loans to borrowers after a certain duration depending on their policies. They also have a leading role to play in helping interested borrowers obtain insurance coverage for their loans. As can be seen, lenders have several duties to fulfill with regard to ensuring a smooth home loan approval, disbursal and support experience for their borrowers.
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