The end-of-year celebrations are here, as are the various mortgage offers from banks and non-banking financial companies (NBFCs).
But one thing that has changed over the past decades is the way loans are offered and used due to digitalization. Certain aspects of a home loan application can now be completed entirely digitally (up to 90%), which was not possible a few decades ago.
Recently, PNB Housing Finance, a subsidiary of Punjab National Bank, updated its Ace 2.5 digital lending platform to include even more digitally automated home loan application processes. These include document verification, geo-fencing, digital app signing, digital data integration with subscription platform, and more.
For customers of do-it-yourself (DIY) home loans, it is very advantageous and effective. That said, not everything can be done digitally at this time. Some tasks must be done offline even to this day.
What is the online part of the digital home loan process?
An Indian citizen between the ages of 18 and 60, with a valid source of income (salary or business), can take out a digital home loan to buy a new house or renovate an existing house, or build a house on land.
Said Abhishikta Munjal, Chief Risk Officer, IIFL Home Finance: “According to industry practices, anyone who is an Indian citizen in the age bracket of 18 to 60 and has a valid source of income in the form of salary , pension or business, and intends to buy a new house, or wants to renovate an existing house, or has land and wants to build his house, can apply for a mortgage.
According to Chitrabhanu KG, Senior Vice President and Country Head, Retail Assets and Cards, Federal Bank, digital home lending processes that can be done online include, among others:
● Submission of Home Loan Application: You need to go to the bank or NBFC Home Loan website and complete the Home Loan Application Form with your details.
● KYC Verification: Your ID proof will be checked against your Aadhaar, Driver’s License or any other relevant database to verify and verify your genuineness and genuineness.
● Underwriting process like verification of income and repayment capacity: the bank or NBFC home loan will ask you to upload your proof of income, such as payslip or balance sheet or statement of account as applicable of your case.
This step is necessary to assess the amount of equivalent monthly installments (EMI) that you are able to pay each month. Not all of your salary or income can be used to repay a loan; therefore, each bank and NBFC have their own formula and rules for determining the maximum portion of your income that can be withheld to pay EMI.
Also, the term of the loan depends on your age, and most banks have a maximum age set for the term of the loan. Incidentally, this too varies depending on different factors, such as the type of income (employee or self-employed), others.
● Finalization of loan amount and property valuation: The bank or NBFC will ask you for building details, developer name, address and other necessary details as required.
In effect, the house would act as collateral for the loan, and so a whole legal and house valuation process is in place.
Court proceedings ensure that ownership is indisputable and that the bank has a transparent transfer of collateral in the event of loan failure. The appraisal process would determine the value of the property according to market standards and ensure that all building bylaws and rules are in sync.
Based on these processes and the value or estimated construction cost of the property, the sanctioned loan amount is determined.
● Documentation, e-Mandate Registration and Loan Disbursement: The e-Mandate registration is taken for subsequent automatic recurring payment of the EMI loan through your bank account.
The loan disbursement process depends on the construction stage of the project. For fully completed projects, the total amount will be disbursed at once after collecting the margin from you in advance.
For projects under construction, the disbursement will be based on the stage of construction in accordance with the agreement between the builder and you.
Although the bank regularly checks the status of the construction, as a borrower you will have to constantly engage with the builder and ensure that the project is completed in accordance with the agreement between you and him.
When the online and offline processes are completed, the bank or NBFC Home Loan will send you a sanction letter stating the proposed loan amount and the terms and conditions of the loan.
Upon acceptance of the sanction notice, the loan agreement would be executed and then the loan would be disbursed in accordance with the agreement.
Is the entire process of buying a digital home digital?
According to Chitrabhanu, the digital home buying process right now is roughly 90% digital and 10% offline.
Chitrabhanu explained that the process of field investigation and/or risk control involves a physical visit by bank officers to the residential and/or business address of the borrower to verify the details. Verification of reimbursement history, fraud checks and other risk control checks are performed through both online means such as CIBIL and offline methods.
Munjal said some parts have to be done manually. “Mortgage property valuation is still a manual process,” adds Munjal.
Besides these, there are still other aspects that digital means do not address, such as creating a load on the house, validating the stability of the business, etc.