What is a Home Loan, and How Does it Work?

A home loan is a financial product offered by banks and financial institutions to help individuals buy, construct, or renovate a house. It is a secured loan where the property serves as collateral. The loan is repaid in Equated Monthly Installments (EMIs), which include both the principal and interest.

Step-by-Step Process of How a Home Loan Works

Step 1: Loan Application

• The borrower applies for a home loan by filling out an application form online or offline.
• Personal, employment, and financial details are provided.

Step 2: Eligibility Check

• The lender evaluates the applicant's income, credit score, and repayment capacity.
• The maximum loan amount is determined based on eligibility criteria.

Step 3: Documentation Submission

• Required documents include identity proof, address proof, income proof, property-related documents, and bank statements.

Step 4: Loan Approval & Sanction

• The lender verifies documents and approves the loan amount.
• A sanction letter is issued mentioning loan amount, interest rate, tenure, and EMI details.

Step 5: Disbursement of Loan Amount

• After legal verification and property evaluation, the loan is disbursed.
• The amount may be paid in installments to the builder (for under-construction properties).

Step 6: EMI Payments

• The borrower starts repaying the loan through monthly EMIs.
• EMIs include both principal repayment and interest charges.

Step 7: Loan Closure

• After full repayment, the lender provides a No Objection Certificate (NOC).
• The property title is cleared from the lender’s charge.