The festive season is here, and so are the different home loan offers by banks and non-banking financial companies (NBFCs).
But one thing which has changed in the past few decades is the way loans are offered and availed because of digitalisation. There are certain aspects of a home loan application which can be completed entirely using digital means now (up to 90 per cent), and this is something which was not possible about a few decades earlier.
Recently, PNB housing finance, a subsidiary of Punjab National Bank, updated their digital lending platform Ace 2.5 to include even more digitally automated home loan application processes. These include, document verification, geo-tagging, digital application signature, digital integration of the data with the underwriting platform, and others.
For do-it-yourself (DIY) home loan customers, this is highly beneficial and efficient. That said, not all things can be done digitally at the moment. Some tasks have to be mandatorily done offline, even to this day.
An Indian citizen aged 18-60 years, and having a valid income source (salary or business), can take a digital home loan for buying a new home or renovating an existing one, or, constructing a home on a plot.
Says Abhishikta Munjal, chief risk officer, IIFL Home Finance: “According to industry practises, any individual who is an Indian citizen within the age group of 18 to 60 years, and has a valid income source either in the form of salary, pension or business, and intends to purchase a new home, or wants to renovate an existing home, or has a plot and wants to construct his home, can apply for a home loan.”
According to Chitrabhanu KG, senior vice president and country head, retail assets and cards, Federal Bank, the digital home loan processes which can be done online, include, among others:
● Submission of home loan application: You have to go to the bank or the home loan NBFC’s website and fill up the home loan application form along with your details.
● Checking KYC: Your identity proof will be verified against your Aadhaar, driving licence, or any other relevant database to check and verify your authenticity and genuineness.
● Underwriting processes like checking of income and repayment capacity: The bank or home loan NBFC will ask you to upload your income proofs, such as salary slip or balance sheet or account statement as per your case applicability.
This step is required for assessing how much equated monthly instalment (EMIs) you are capable of paying each month. Your entire salary or income cannot be used for loan repayment; hence each bank and NBFC has their own formula and rules to determine the maximum portion of your income which can be taken for paying the EMI.
Also, the tenure of the loan is dependent upon your age, and most banks have a maximum set age for loan tenure. Incidentally, this too varies based on different factors, such as income type (salaried or self-employed), others.
● Finalising loan amount and valuation of property: The bank or the NBFC will ask you for the building details, promoter name, address, and other necessary details, as required.
This is because the home would act as a security for the loan, and hence an entire legal and home valuation process is in place.
The legal processes makes sure that the property ownership is unquestionable and the bank would have a seamless transfer of security in case of the loan going bad. The valuation process would determine the value of the property according to market standards, and to ensure that all bye-laws, rules of construction are in sync.
Based on these processes and the value or cost estimate of the construction of the property, the sanctioned loan amount is determined.
● Documentation, registration of e-mandates and loan disbursal: Registration of e-mandates is taken for subsequent automatic recurring payment of the loan EMI through your bank account.
The loan disbursal process is dependent upon the stage of construction of the project. For fully completed projects, the entire amount will be disbursed in one shot after collecting the margin from you upfront.
For projects under construction, the disbursement will be based on the stage of construction as per the agreement between the builder and you.
While the bank will check the stage of construction on a regular basis, as a borrower, you will need to continuously engage with the builder and ensure that the project is being completed as per the agreement between you and them.
When both the online and offline processes are completed, the bank or home loan NBFC would issue a sanction letter to you intimating the proposed loan amount and terms and conditions of the loan.
On acceptance of the sanction intimation, loan agreement would be executed, and then the loan would be disbursed as per the agreement.
According to Chitrabhanu, at present, the digital homebuying process is about 90 per cent digital and 10 per cent offline.
Chitrabhanu explained that the process of field investigation and/or risk containment, involves a physical visit of bank officers at the residential and/or work address of the borrower to verify the details. Checking of repayment history, fraud checks, and other risk containment checks are done both through online means like CIBIL and offline methods.
Munjal said there are some parts which have to be done manually. “Mortgage property valuation is still a manual process,” Munjal adds.
Besides these, there are still other aspects which are not being answered by digital means, such as creating a charge over the home, validating business stability, and others.
