Getting a home loan sanction letter feels like the finish line. It is actually the halfway mark. Here is what sanction and disbursement mean, and what happens between them.
We also walk through a worked example, a list of papers to keep and the mistakes that slow first-time buyers down.
Sanction: the bank's promise
A sanction letter says the bank is willing to lend you a certain amount, at certain terms. It is based mainly on your income, your existing loans and your credit report. It does not mean money has been paid yet.
Read the letter carefully. It usually states the loan amount, the interest rate and how it is set, the tenure, the processing fee and any special conditions, such as adding a co-applicant or closing an existing loan.
How long a sanction lasts
Sanction letters usually have a validity period. If you do not take the loan in that time, the bank may re-check your file. A sanction can also be withdrawn if your income changes, your credit report worsens, or the property fails the bank's checks.
The property check
After sanction, the bank checks the home itself:
- Legal check: its lawyers look at the title and approvals.
- Technical check: its engineer checks the building and its value.
Many banks have already checked popular projects in advance, which can make this faster.
The whole journey, step by step
- Check your own numbers. Look at your credit report and work out a comfortable EMI before you apply.
- In-principle approval. Optional, but it tells you roughly how much you can borrow.
- Choose the home and sign the agreement for sale.
- Formal application. Submit income proof, bank statements, identity papers and the property documents.
- Sanction letter. Read the conditions and the validity date.
- Legal and technical checks on the property.
- Loan agreement and, for an under-construction home, often a tripartite agreement with the builder.
- Disbursement, in one go or in stages.
Disbursement: when the money moves
Disbursement is when the bank actually pays. For a ready home, it is usually one payment to the seller. For an under-construction home, it comes in parts, each one after the builder sends a demand letter for a completed stage.
Each time, you send the bank the demand letter and proof that your own share for that stage is paid. The bank then pays the builder directly. It does not hand the money to you.
What you start paying, and when
Your payments begin after the first disbursement. For an under-construction home, you can choose pre-EMI, which is interest only on the amount released, or full EMI from the start.
Your share comes first
RBI rules cap how much of the home's value the bank can lend. Banks usually want to see your own share paid before they release their part.
The caps depend on the loan size: up to 90% of the value for loans up to ₹30 lakh, up to 80% for loans above ₹30 lakh and up to ₹75 lakh, and up to 75% above ₹75 lakh. Stamp duty and registration charges are generally not counted in the value for this purpose, so plan to pay them yourself.
A worked example (illustrative only)
These numbers are for practice and are not a Reeva price. Say a home costs ₹75 lakh and the bank sanctions ₹60 lakh, which is 80% of the value. Your own share is ₹15 lakh.
- Stage 1, on booking and agreement: the builder asks for 20%, or ₹15 lakh. Banks usually ask you to pay this from your own money first.
- Stage 2, foundation: the builder asks for 15%, or ₹11.25 lakh. The bank releases it. Pre-EMI at an illustrative 8.5% a year on ₹11.25 lakh is about ₹7,969 a month.
- Later stages: as the slabs and finishing are done, the bank releases more. By the time ₹45 lakh is out, monthly interest is about ₹31,875.
- Full release: once all ₹60 lakh is disbursed, a 20-year EMI at the same rate is about ₹52,070.
The arithmetic is simple: monthly pre-EMI is the amount released, times the yearly rate, divided by 12. You can check every bank statement with that formula.
Papers to keep from each step
- The sanction letter and loan agreement
- Every demand letter from the builder
- Every disbursement letter from the bank
- Payment receipts from the builder
- Your loan account statement each year
Common mistakes that slow things down
- Taking a new loan during the process. A car loan or a large card balance after sanction can change the bank's view of your file.
- Letting the sanction lapse. Note the validity date. If you are close to it, speak to the bank early.
- Not checking the property value. If the bank's engineer values the home lower than the price, the loan is based on the lower number. Keep a buffer.
- Forgetting the interest rate type. Know whether your rate is linked to an external benchmark such as the repo rate, and how often it resets.
- Losing demand letters. Without them, the bank cannot release the next stage and the builder may charge you interest for late payment.
How much loan can your salary carry? (illustrative only)
Banks look at how much of your monthly income already goes to EMIs. Each lender has its own limit, so treat this as a way to think, not a rule. Say your take-home pay is ₹1,20,000 a month and you have no other loans. If you decide you are comfortable putting no more than 40% towards a home loan EMI, that is ₹48,000 a month.
At an illustrative 8.5% a year over 20 years, an EMI of about ₹43,390 matches a ₹50 lakh loan, and about ₹52,070 matches ₹60 lakh. So on these numbers, a loan near ₹50 lakh fits your limit and ₹60 lakh does not. Run your own figures in an EMI calculator before you apply, and leave room for rate rises.
A short checklist before your first disbursement
- Sanction letter read, conditions met
- Agreement for sale registered
- Own share paid, receipts saved
- Demand letter for the stage in hand
- Pre-EMI or full EMI choice made and written
- Auto-debit set up from a salary account with enough balance
New to all this? Our first home guide walks you through every step, from saving to registration.
