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Pre-disbursal home loan terms


There are many technical terms you will come across when applying for a home loan. For instance, words like credit appraisal, underwriting, and loan-to-value are common terms used by lenders before disbursal of loans. Here we describe these terms.

1. Credit appraisal: This is the process which determines the credit worthiness of a borrower. It is a part of the verification process wherein officers from the loan provider verify details like your employer, your income, number of dependents, your loan history and review documents such as your your bank statements and salary slips. Every lender has its own appraisal officers for this purpose.

In order that you get a clean chit at the end of this process, its best if you have a maintained a clean credit history on any existing loans and borrowings.

2. Underwriting: Like credit appraisal, underwriting too forms a part of the verification process and also involves an assessment of the loan eligibility of a customer. During this process, the lender evaluates whether it wants to “underwrite” the loan or not, i.e., does it want to take the loan on its own books or not.

An important analysis that underwriters conduct is calculating the Fixed Obligation to Income Ratio (FOIR). This is calculated by taking into account all fixed obligations of a borrower relative to the income that the borrower has. Typically, most home loan lenders would not like to see a FOIR of greater than 50%.
For instance, Shanti has an income of Rs. 48,000 per month and is interested in taking a home loan. She has the following monthly instalments:
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