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First step is to fill the application form. The content of an application form may differ from bank to bank, but nearly 90% of the information they need is similar. The information is basically your personal and professional information, details of your financial assets and liabilities and the details of the property (if finalised) including the estimated cost and the means of financing the same.
DOCUMENTS TO SUBMIT
The bank or its DSA will asks for a list of documents.
Age Proof: Copy of your school leaving certificate/Driving license /Passport/ration card/ PAN card /Election Commission’s card/etc.
Address Proof: Similar documents need to be provided to prove that you are actually staying at your current address.
Identification Proof: Same as above, but with photograph. Sometimes, the same document if it contains a photograph, the current residential address and the correct age can be the proof for all 3 things.
Proof of Income: This will need to be backed up by proofs such as copies of last three years’ Income Tax returns (along with copies of Computation of Income/Annual accounts, if any), Form16/Form16A, last three months’ salary slips, copies of the last 6months’statements of all your active bank accounts in which your salary /business income details are reflected, etc. Other documents that you need to provide with your application form include age proof, address proof and identification proof. You may also be asked to give your employment details.
Your Employment Details: If your company is not well‐known, then a short summary about the nature of the company, its business lines, its main customers, its competitors, number of offices, number of employees, turnover, profit, etc may be needed. Usually, the company profile that is available on the standard website of the company is enough.
All the income‐related documents you submit serve a specific purpose. The lending institution uses them to study your financial status.
The bank statements you submit are scrutinized for:
Level of activity in the case of self‐employed persons, this gives a very good clue about the extent of business activities. Average bank balance a cursory glance at the average bank balances maintained in a savings bank account speaks volumes about the spending/saving habits of any individual.
Cheque returns a small charge debited by your bank in the statement indicates that a cheque issued by you was returned by your bank. Many such cheque returns can have a negative impact on your loan sanction. Cheque bounces if cheques deposited by you are returned by the issuer’s bank, they will be visible in your bank statement and again, banks have specific norms as to how many such returns are acceptable in a period of one year.
Regular periodic payments the existence of periodic payments to other finance companies/banks etc. indicate an existing liability and you will need to provide full details to the lender.
Your investments also come under the scanner. This helps the bank to estimate your ability to pay the down payment as well as your savings habit.
Along with the application form and the credit documents, banks ask for a processing fee. This fee varies from bank to bank, but is usually around 0.25% to 0.50% of the total loan amount. For instance, if you take a loan of Rs 10 lakh, you will have to pay around Rs 2,500 to Rs 5,000 as processing fee. The agent dealing with you earns a commission from the bank, which to some extent is also affected by the amount of fees paid by you.
Most banks have flexible fee structures, and it is advisable that you negotiate hard to find out the bank’s minimum possible fees though it is unlikely that a bank will agree to provide a loan without any upfront fee at all. Some banks have zero upfront fee loans, but that advantage may be negated as their other charges such as “legal charges” and “stamp duty” are normally higher.
This fee is collected to maintain your loan account, and includes work like sending Income Tax certificates every year, maintaining post‐dated cheques, etc.
When applying for a loan, it will help to keep copies of your income proof handy.
For self‐employed persons, if the income has increased dramatically in the past year, have your explanation ready as to why you think this is a permanent increase in your income rather than just a one‐time aberration which might be reversed in later years. If the bank is convinced with your explanation, then the loan eligibility can be considered in relation to the latest income rather than considering the much lower average income.