How to Apply for a Home Loan: Step-by-Step Guide

Looking to buy a home but not sure where to start? That’s where home loans come in. They are pretty much the go-to option for most people when it comes to affording a house. Whether you are a first-time buyer or looking to upgrade your current space, a home loan can provide the financial support you need to make that big purchase.

It’s important to understand the basics – like interest rates, repayment terms, and eligibility – so you can choose the best option for your needs.

What is a Home Loan?

A home loan is essentially a type of loan you take out to buy a house or property. You borrow money from a bank or financial institution, and in return, you agree to repay that amount over a set period.

The house itself serves as collateral, meaning if you can't keep up with payments, the lender can take ownership of the property. Home loans typically come with different interest rates, repayment terms, and conditions, so it's important to choose one that fits your budget and long-term plans.

How to apply for a Home Loan

Step 1: Fill out the loan application form and gather required documents

To start, complete the application form provided by the bank. You will need to provide personal details, such as your full name, date of birth, contact information, and employment details. Along with the form, submit documents like identity proof, age proof, address proof, income proof, educational certificates, and property-related documents.

Step 2: Pay the processing fee

Next, pay the processing fee, which ranges from 0.25% to 0.50% of the loan amount. This fee covers administrative costs like document evaluation and background checks.

This fee is non-refundable, even if the bank rejects your loan application. Some lenders might offer fee waivers or discounts.

Step 3: Submit the application to the bank

After filling out the form and paying the processing fee, submit your application to the bank or financial institution. The bank will begin reviewing your documents and application. Be prepared for any requests for extra information or documents, such as income verification or details about the property.

Step 4: Document verification

Once you submit your application, the bank will verify and check the authenticity and accuracy of all the documents. In some cases, the bank might visit your residence or office to verify your address and employment details.

The bank will also assess your creditworthiness by reviewing your credit score and financial stability.

Step 5: Loan approval process

After verifying your documents, the bank will assess your eligibility for the loan based on factors like your credit score, income, and overall financial health. The bank will then decide the loan amount and the interest rate. If approved, the bank will issue a loan offer letter with the loan details, including the amount, interest rate, and repayment terms.

Step 6: Review loan offer

Once you receive the loan offer, carefully review the terms and conditions, including the loan amount, interest rate, tenure, and repayment schedule. It’s crucial to understand whether the interest rate is fixed or floating, as this will affect your monthly payments.

Step 7: Legal verification of property

After agreeing to the loan offer, the bank will begin verifying the property’s legal status. They will check that the property has clear legal ownership and is free from any disputes. The bank may request documents like proof of ownership from the seller, along with No Objection Certificates (NOCs) from local authorities.

The bank might also conduct a technical check particularly for under-construction properties.

Step 8: Final loan agreement

Once the verifications are complete, the bank will draft the final loan agreement. This agreement outlines all the loan details, including the loan amount, interest rate, repayment terms, and collateral requirements. Both you and the bank must sign the agreement.

Step 9: Memorandum of Execution (MOE)

After signing the loan agreement, you will also need to sign the Memorandum of Execution (MOE), which formally completes the loan transaction. This document acts as proof of the loan’s legal status. You may need to pay stamp duties for the agreement, and the bank may request a video recording of the process for verification.

Step 10: Loan disbursal

Finally, after all documentation is complete, the bank will disburse the loan amount. For a ready-to-move-in property, the bank typically releases the full loan amount. If you are purchasing an under-construction property, the bank will disburse the loan in stages, based on construction milestones.

Types of interests on Home Loans

• Fixed Interest Rate: The interest rate stays the same throughout the loan period, so your monthly EMI remains constant. Fixed-rate loans usually have a higher interest rate than floating ones.
• Floating Interest Rate: The interest rate changes based on market conditions, often linked to the bank's base rate or the RBI’s repo rate. This means your EMI can fluctuate over time. Floating rates are suitable for those who are comfortable with some variability in payments and want to take advantage of potential lower interest rates when the market is favourable.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.