What is the Difference Between Home Loan Sanction and Home Loan Disbursement?

When lenders advertise speedy approval and disbursal, are you confused what it the process entails? As a home loan applicant, it is important that you understand and digest what each phase of the home loan application journey means for you, so you can do your best to enhance your chances of securing an attractive loan that is aligned to your needs. 

There are three important phases of your home loan application process: 

• Home loan application
• Home loan sanction
• Home loan disbursement 

As we walk you through all three phases of your application journey, we will also highlight the key differences between home loan sanction and home loan disbursement – how they don’t mean the same thing, and how the fate of your home loan can still change between these two phases. Read on to learn more. 

Phase 1: Home Loan Application 

The home loan application phase is, as the name suggests, the phase during which you file your formal request for a home loan. This can be done both online, and offline – where you fill a form detailing your home loan request, for the lender to assess. Here are some of the things that are included in the home loan application form: 

• Applicant’s basic personal details 
• Applicant’s income and employment details 
• Applicant’s property details – if the property has been identified or not 
• Applicant’s credit report details 

Note: This list is indicative, and application forms differ from lender to lender. 

Once your application has been formally registered with the lender after the payment of your processing fees, the lender proceeds to verifying your loan application to establish your home loan eligibility and repayment credibility. 

Phase 2: Home Loan Approval and Sanction 

Largely, your home loan approval hinges on two important aspects: 

• Assessment of your financial profile 
• Evaluation of property 

The lender reviews and verifies every information in the application form; including your credit history, employment and income details. The authenticity of your supporting documents is also assessed to eliminate any doubts or concerns. Once the lender runs all the checks and is convinced of your creditworthiness, a sanction letter will be issued. 

What does the Sanction Letter Entail? 

Your home loan sanction letter is a written document, stating that your home loan has been approved by the lender. It contains the following information:

• Sanctioned loan amount
• Loan tenor
• Mode of repayment
• Applicable home loan rate of interest
• Type of interest rate - fixed, floating or hybrid
• Special scheme (if applicable)
• Home loan tax benefits
• Terms and conditions of your home loan

The sanction letter also mentions the date till which the letter remains valid, within which the loan has to be disbursed. The validity period of a sanction letter is usually six months. Once it expires, you will have to go through the entire home loan application process again.

Upon receiving the sanction letter, one is required to sign and submit the acceptance copy to the lender. Before sending your acceptance, go through the entire document carefully and understand what it says. You may also need to pay an administrative fee along with the acceptance letter. 

A sanction letter is not the only legal loan approval. It simply informs the applicant about his/her eligibility to avail a certain amount. The final payment is still subject to further verification by the lender. 

Phase 3: Home Loan Disbursement

Loan disbursal is the last step in the home loan process, where you get the loan amount from the lender. After receiving your home loan sanction acceptance, lenders begin the process of legal and technical assessment of the property. A technical expert will check the quality of construction, measure the area and note other relevant details. Alternatively, a lawyer will verify the authenticity of the property documents to ensure clear title. 

Once these checks and measures are completed, the lending institution evaluates the cost of the property and sends a loan agreement. If you accept the terms and conditions stated therein, the lender will disburse the loan amount, fully or partially, depending on the terms.

There are two different modes of home loan disbursal:

• Full Disbursement: In case of a full disbursement, the lender hands over the entire amount to the borrower at one go. 

• Partial Disbursement: In case of a partial disbursement, the lending institution disburses the home loan in instalments, For instance, if you are buying a residential property that is still under construction, the loan amount will be released in parts, based on the stage of construction.

The core difference between home loan sanction and home loan disbursement is the act of receiving the loan amount in your account. Applicants must understand that despite receiving home loan sanction, your disbursement orders are not implicit. Ensure that both your profile and the property’s valuation is up to mark, so the disbursement process can continue seamlessly. 

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