The home loan process has several steps before the money reaches your account. Two key stages are sanctioning of Loan and disbursement of Loan. Though these may sound similar, there is a difference between sanction and disbursement phases in the home loan approval process.

Sanction means when the bank has officially approved your loan amount. Disbursement is when the bank transfers the loan amount to your account.

Understanding the difference is important, especially when planning to buy a home. This article will look at the difference between sanction and disbursement of loans, detail how both concepts operate independently in home loan approval, their purposes, and areas of distinction.

What is a Home Loan Sanction Letter?

A sanction letter is the official document issued by the bank or lender on accepting your home loan application. This happens once the lender has examined your background with regard to loans, credit score, income, and employment status as well as any other eligibility factor. The sanction letter displays the details of the loan and terms but it is not the final stage in the loan process.   Key information in a sanction letter includes:
  • Loan amount: The maximum amount approved by the bank for your loan.
  • Tenure: The period within which you will repay the loan for example, 10 years, 15 years, or 20 years.
  • Rate of Interest: Fixed or floating interest is applicable in that case.
  • Repayment terms: Details about how and when the loan must be repaid, typically through equated monthly installments (EMIs).
  • Special conditions: Any specific requirements you need to fulfill before receiving the funds, such as submitting additional documents or completing legal formalities.
  A sanction letter is, in effect, an approval letter for the loan. However, it does not indicate that you will receive the loan amount immediately. It is a valid document for six months and you have to accept the terms within that time frame to move ahead.

What is Home Loan Disbursement?

Disbursement is that stage where the bank actually transfers the loan amount to your account or the account of the seller. This is the actual transfer of funds that happens after you meet all the conditions outlined in the sanction letter. The process involves legal checks, technical inspections, and submission of all necessary documents including property papers.   There are two kinds of loan disbursements:  
  • Complete Disbursement: When the entire loan amount is transferred in one go. This usually happens at the time of buying a completed property.
  • Partial Disbursement: The loan is released in stages. This is common for under-construction properties, where the bank releases funds based on the progress of construction.
  The disbursement amount is released to either the builder or the borrower, depending on the loan agreement. The bank may also hold a portion of the loan amount and release it later once construction goals are met.

How Do the Two Work Separately?

1. Sanction Phase:

During the sanction phase, the bank carries out an in-depth study of your loan application in detail. They check your credit history, income, and other factors. If you meet all their requirements, they issue a sanction letter approving your loan. However, this does not mean the funds are disbursed yet. Before the money reaches your account, there are certain conditions that you need to fulfill before the loan amount gets into your account.

2. Disbursement Stage:

After you receive the sanction letter, the disbursal stage begins. In this phase, the bank conducts legal and technical checks. It verifies property documents to ensure there are no legal disputes. Once all conditions are met, the bank releases the loan. The amount may be given all at once or in parts, depending on the property's completion stage.

Difference Between Sanction and Disbursement of Loans

There are five key difference between Sanction and Disbursement of Loans  

Home Loan Sanction

Home Loan Disbursement
This refers to the approval of the loan by the bank. That means the bank agrees to lend you an amount, but no money has been transferred yet. This is the stage where the approved loan amount is actually transferred to either your account or the builder.
The purpose of the sanction stage is to confirm that you are eligible for the loan and that the bank is willing to provide the loan. The purpose of disbursement is to release the funds so you can complete the purchase of your home.
The sanction letter details the loan amount, interest rate, tenure, and other conditions. It serves as a commitment from the bank that the loan is available, pending fulfillment of conditions. The distribution document specifies the amount of money released, the payback plan, and any remaining balance that needs to be disbursed (if partial disbursements are made).
A sanction letter is issued based on your financial profile and eligibility, but there may be additional conditions to meet before the loan is disbursed, such as submitting property documents or making a down payment. Disbursement happens only after all conditions in the sanction letter are fulfilled, including legal and technical verifications.
The sanction happens early in the loan process, typically after the bank has reviewed your application and documents. Disbursement occurs later, after all conditions are met, and the bank has verified the property details.

Conclusion

Understanding sanction and disbursement is crucial when taking a home loan. Sanction means the bank has approved your loan and issued a confirmation letter. Disbursement is when the bank releases the loan funds.

Knowing these steps will helps you manage your loan better and avoid potential delays. Disbursement is the final step that turns you from a buyer into a homeowner. It may take time and multiple steps, but in the end, you’ll have a home to call your own!