When and why are Home Loans disbursed in tranches?

January 11, 2022

When and why are Home Loans disbursed in tranches?

Home Loans can be disbursed as lump sum payment or in tranches. Read this post to know when and why a lender disburses loans in tranches.

Once you’ve completed the Home Loan application and approval process, you receive a Sanction Letter from the lender. On receipt of the Sanction Letter, you can initiate disbursement of the loan, if the property is finalised.

But Home Loans can either be disbursed as lump sum payment or in tranches. Basis the property transaction type, it is decided whether a loan should be paid as a lump sum amount at once or in tranches. Here’s everything you should know about the Home Loan disbursal process in tranches.

When is a Home Loan disbursed in tranches?

A Home Loan is paid out in full when the borrower purchases a property that is already constructed. In such cases, the lender will disburse the amount in the name of the developer or the seller. However, if the property is under construction, the Home Loan disbursement is done in instalments, based on the construction progress.

The Developer or Builder sends a Demand Letter to the buyer after completing every stage. The buyer then submits this letter to the lender to get the required amount disbursed.

Why do lenders disburse Housing Loans in tranches?

After submitting all the required documents for disbursement, the lender will disburse the loan amount in tranches, if the property is still under construction. If the entire amount is paid to the developer before the construction is completed, there is the risk of the developer or builder of not completing the construction. This could lead to losses for the lender and the buyer.

While the problem of non-completion of real estate projects was very rampant in the past, RERA has introduced a host of buyer-friendly policies. For instance, developers are now required to deposit 50% of the amount received from the buyers in an Escrow Account to prevent fund diversion. Also, if the builder is unable to complete the project on time, a buyer can claim a full refund with interest.

What are the stages of Home Loan disbursement?

Here’s a quick overview of Home Loan disbursement stages:

  • Receive the Sanction Letter from the lender and get the property verified
  • Submit the property documents, like Sale agreement, NOC from the builder, Construction Progress Status Letter from the builder, registered Sale Deed, Demand Letter from the builder, and Own Contribution Receipt.
  • Submit all the documents to the lender
  • Pay the applicable disbursal fee
  • If the request is accepted, the lender will disburse the first instalment.

How long does it take to disburse the Home Loan, post approval?

After all the required documents are submitted, the lender will initiate verification. From document submission to loan disbursal, it can take around 7-10 working days.

Borrowers can contact their bank representative to check the disbursement status.

Choose a reputed lender for faster approval and disbursement.

If you are about to purchase an under-construction property, the loan amount will be directly paid to the developer in instalments, as per the construction progress.

The entire process of application, approval, sanction and loan disbursal can be time-consuming and challenging. It is therefore, essential to choose a reputed lender. The extensive presence of such reputed lenders can accelerate the entire process, helping you fulfil your dream of being a homeowner at the earliest.

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