Home Loan Essential Lexicon
Credit appraisal: It is a check on your financial situation to determine eligibility for home loan and the maximum loan amount. Your credit worthiness assures your repayment capacity.
Disbursement: This is the actual release of loan amount to you by the lender. Usually, it happens when all the submitted documents have been verified and the down payments have been paid. A loan is always disbursed by cheque, which can be credited into a loan account with the bank; it is never given by cash. Disbursement could be full, partial or an advance.
Loan to value ratio (LTV): The percentage of loan you are getting in relation to your property's value. For instance, if the property value is Rs 50 lakh and you are sanctioned Rs 35 lakh loan, the LTV is 70 per cent. This is also known as the margin.
Offer letter: Also known as sanction letter, it is a formal confirmation from the lender stating that it has been agreed upon to consider you as one of the loan customers. It does not confirm sanction of home loan. The loan will be disbursed after a verification of all legal documents and your eligibility as an applicant.
Pre-approved property: A preapproved property means that the concerned financial institute has verified all legal and technical documents of the project and has found them in order. So, you as a buyer and borrower need not get the legal verification done again.
Pre-EMI: When you buy property which is under construction, the loan sum is partially disbursed to the builder. When a loan is partially disbursed, only interest payments are made on that amount. These interest payments are known as pre-EMI. So the longer your builder takes to complete construction, the more interest you pay to the bank, adding on to the cost of your property.
Pre-payment: If you choose to make lump sum repayment of the loan besides the EMI, it is known as prepayment. Pre-payments help you get debt-free faster and close the loan before its tenure.