When the borrower’s eligibility for the loan application is confirmed, the bank or financial institution issues a sanction letter. Here’s everything you need to know about this document.
Banks provide eligible individuals with a sanction letter as part of the lending process. This document expresses the bank’s intention to provide a loan amount on the terms agreed upon by both parties. It also serves as proof that they communicated.
In this blog, you will learn about the loan sanction letter, how to obtain it, and why it is important.
Meaning of Loan Sanction Letter
A sanction letter is a statement of proof that the borrower receives prior to final approval on their home loan. It is issued by a bank when the borrower becomes eligible for the loan amount requested.
This document also contains some important information about the loan, such as:
Loan amount
Interest rate
Total loan tenure
EMI details
The validity period of the letter
Home Loan Sanction Letter Importance
A home loan sanction letter is extremely important for the loan recipient. It is the first important document they receive before obtaining a loan. It establishes the terms of the loan and thus must be carefully reviewed.
Find out why this letter is so important below.
Loan Details: The letter contains all of the loan’s essential details. The letter contains everything the borrower needs in one place. It is also useful for future reference, long after the loan has been issued.
Reviewing the Terms: This information on the loan sanction letter is critical to review. It is shared by the bank prior to the final agreement. This document allows the borrower to review the loan’s full terms.
Negotiating the Terms: The letter puts all of the details on paper. The person who applied for the loan then has the opportunity to review the terms in detail. It may help them negotiate better terms if necessary. If necessary, the borrower can compare and switch lenders to find a better deal.
Planning Expenses: The letter provides information about the loan’s EMI. It can help people determine whether they will be able to afford the expenses for the specified period.
Evidence of Communication: If there is a dispute, the letter can be used as evidence. It contains the lending party’s signature and details.
Compulsory Document: Some property dealers require a copy of the sanction letter to complete the transaction.
How to Get a Sanction Letter?
Obtaining a loan sanction letter involves several steps. Here are the details of the entire process:
Shortlisting Suitable Lenders
When it comes to lending parties, it is a good idea to consider several options. Individuals must compare the amount and terms available before applying for the one that is best for them. Keeping options will also help them if one of their loan applications is rejected.
Loan Sanction Letter Eligibility
Individuals applying for a loan must demonstrate their eligibility before being considered. It is important to note that the criteria for this may differ depending on which lending party you choose. Above all, creditworthiness is critical in determining eligibility. Some elements to consider include the borrower’s nationality, age, employment status, and CIBIL score.
Sanction Letter Documentation
Before issuing a sanction letter, banks request the following documents.
Identity Proof and KYC: Identity confirmation requires documents such as an Aadhar card, a driver’s license, a passport, and a voter ID.
Employment Proof: The borrower will be asked to provide a Job Card signed by a State Government Officer and issued by NREGA.
Income Proof: The process includes providing proof of income to the lending institution. Borrowers must submit six months’ worth of bank statements and salary slips as proof of income.
ITR Proof: The borrower will be asked to provide proof of their income tax returns for the previous year.
Some banks may also require additional documents for loan processing.
Verification of Documents
The lending institution takes some time to review the documents. It confirms the information provided by the applicant. It is recommended that the borrower double-check all information before submitting it for approval to ensure that the application is processed smoothly.
Sanction Letter Issuance
Once the verification and approval processes are completed, the lending institution provides the borrower with the sanction letter. The file is then distributed to the borrower’s residence.
The difference between a Loan Sanction Letter and a Loan Agreement
See how they differ below.
| Sanction Letter | Loan Agreement |
| It confirms loan eligibility and is issued by the bank. | The final agreement declaring the approved loan amount is signed by both the lender and the borrower. |
| It is not a legal document. | It is a legal and binding document. |
| The borrower may negotiate the terms and conditions outlined in this letter. | Once the loan agreement is signed, no further negotiations are possible. |
| There are additional steps to getting a home loan. | This agreement concludes the home loan approval process. |
Conclusion for Loan Sanction Letter
A person applying for a home loan receives a sanction letter once their information has been successfully verified by the bank. Receiving this letter indicates a high chance of getting a loan approved. It contains information about the loan applied for. It is also required as a mandatory document for property transactions. To ensure a smooth application process, it is prudent to understand what a loan sanction letter entails.
