Buying a house is not a cakewalk! From documentation to home loan processing, a home buyer is involved in various things that make the entire home buying process pretty daunting and challenging. When it comes to the home loan process, most financial institutions use a wide range of risk assessment tools in order to evaluate the creditworthiness of the borrower. The risk assessment tools are vital to the processing and approval of home loans.
Despite that, in some cases, the applications for a loan are rejected due to various technical and legal aspects. But you don't need to worry about this as we are here to help you understand everything about Legal and Technical Verification in home loan processing. This article highlights all you need to know about the Legal and Technical Verifications of your property in order to get your loan approved.
Let's start with Legal Verification first!
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What is the Legal Verification of a property?
For money lenders or financial institutions to process your home loan application, your property should be free from any sort of legal dispute. Due to this reason, they send a team of professionals or experts to thoroughly examine the respective property documents. These documents involve non-objection certificates, i.e. NOCs, title deeds and other ownership documents for legal home loan verification. Besides this, a group of certified lawyers generally undertakes the inspection process.
If you are taking a loan for an under-construction house, you will be required to present the relevant documents involving Commencement Certificate, NOCs, Encumbrance Certificate and Occupancy Certificate. Here, an Encumbrance Certificate is a certificate that certifies that the property is free of pending dues and legal contests. These ownership certificates remain in the custody of the lender until you fully repay the loan amount. In addition to this, you will also need builder-buyer paperwork and an agreement proving that the builder can initiate the construction work legally.
Once the legal team thoroughly examines the concerned documents, they prepare and send a report to your lender. The report that they send states the issue with your property if any.
Impact of Legal Verification on the home loan application
It is important to note that no bank or financial institution will ever fund the purchase of a property that is caught in any sort of legal dispute or complexity. You can expect your lender to wholly reject your home loan application if the team of legal experts sends across a negative Legal Verification report. This, in fact, is pretty helpful for the homebuyer since they are saved from getting caught in a bad deal.
What is Technical Verification of a property?
The second type of verification that banks conduct before approving a home loan request is Technical Verification. Under Technical Verification of a property, the money-lender sends a team of technical experts to evaluate and examine the building specifications, physical health and market value of the property. Furthermore, the technical experts also examine the cost of raw materials procured, labour costs, and other key details relating to the construction. Also, it is important to note that during Technical Verification of home loans, the officials check if the building adheres to all the construction norms.
To put it simply, through this process, the lender tries to gauge the physical health of the property in question. The technical experts examine the physical conditions of the property along with market value and building specifications and then decide on the loan they could offer for the property. Remember that, in case of any defaults in future, the bank will sell the property in the open market to recover its losses.
Also Read: What Is A Sanction Letter And Its Role In Getting A Home Loan
Impact of Technical Verification on housing loan amount
Do you want to know the impact of Technical Verification on the home loan amount? If yes, we have got you covered under this segment of the article.
Suppose you are purchasing a property for Rs. 1 crore. You might be well aware that banks generally don't offer loans more than 80% of the house cost. Therefore, you arrange Rs. 20 lakhs from any other source and apply for a home loan of Rs. 80 lakhs from the bank. Now, when the Technical Valuation team of the bank visits your property for examination, it decides the property's market value to be not more than Rs. 90 lakhs and declares the same in the report.
In case the bank from which you are taking the loan has an LTV (Loan to Value) ratio of 80% only and is unwilling to make any exceptions, it will be able to offer you only Rs. 72 lakhs as a home loan. This means you yourself have to arrange another Rs. 8 lakhs.
Also Read: Documents To Carry While Buying A Home
Legal-Technical Verification charges on home loans
In general, lenders hire third-party contractors to take on the Legal and Technical Verification of the property. As a consequence, the borrower is almost always asked to bear the full cost involved in this process. While some banks impose a separate fee known as the Legal and Technical Evaluation fee, others might line up the same with the processing fees.
The Legal-Technical Verification charge will differ, depending on the lender from whom you are taking the housing loan. Commonly, the bank will ask you to pay a flat fee ranging from Rs. 5000 to Rs. 10000, as Legal and Technical Evaluation charge.
Importance of Legal and Technical Verification in home loan processing
The valuation and validation of the property from a legal and technical aspect forms an essential part of the inspection of the home loan process. Moreover, a substantial amount of housing loan depends on the legal and technical valuation of the property. A home loan is a secured loan in which property is used as collateral or security; therefore, you are asked to submit the original property documents.
Both Legal and Technical Verification plays a vital role in the home loan approval process. The Legal Verification ensures that your property is not caught up in any kind of legal complexities. In addition to this, it also allows you to steer clear of any legally-disputed realty deal. On the other hand, Technical Verification is the deciding factor in finalising your home loan amount. Based on the technical assessment of the property, the team sends a detailed report to your lender, which decides the value of your property. Ordinarily, the lenders offer home finance worth 75%-90% of the total property value.
To conclude, we would like to tell you that it's highly important to keep all the documents ready before your lender begins these verification processes. In the end, you can rest assured knowing that the property you will buy is sound, both legally and technically!