16 MARCH, 2022

Amit and Sumit, best friends who achieved all their milestones together, planned to purchase their house in the same locality. They both approached a nearby bank and fulfilled all their formalities for the loan. Their application was approved, and the loan amount was disbursed.

However, they were surprised to know that where Amit received the loan amount in a lump sum, it was not the case with Sumit. The bank officials informed Sumit that his loan would be disbursed in tranches. When they inquired about it, they were informed that the difference is due to the different property types they have chosen for themselves. 


If you are soon going to avail a home loan, you must know the process of disbursement.


Process of disbursement

  • When you apply for a home loan, the lenders scrutinize your application and assess your eligibility based on the documents you submit.
  • When your loan is approved, the lender will send you the sanction letter with all the loan details.
  • Once you send the signed copy of the letter, you will be asked to submit the property document.
  • The lender will get the property verified by legal and technical experts. You might be asked to pay a disbursal fee.
  • The lender will disburse the amount in lump sum or tranches.
  • Depending on the property valuation, the disbursement of the loan can take up to 7-10 days.


When do lenders disburse the loan in tranches?

Typically, the home loan you apply for is disbursed in lump sum when you buy a ready to move property. The lender directly transfers the money in the name of the developer or seller. However, you will get the loan amount in tranches if you purchase an under-construction property. For under-construction property, the loan amount is disbursed in instalments based on the construction progress. 

The lender closely monitors the construction progress to disburse the amount. They release the next instalment only when the construction stage funded by the previous tranche is completed.

Typically, the developer/builder periodically sends the progress report to the buyer. The buyer submits the report, asking the lender for the next instalment.


Why do lenders disburse the loan amount in tranches?

There are instances where a housing project is started but is never completed. It gets stuck due to a legal issue or some accident and the builder is never able to finish the project. Often the buyers’ and lenders’ money is stuck in the project leading to a loss. To avoid such issues, lenders disburse the amount in instalments. However, currently, the Real Estate Regulatory Authority provides relief for buyers. According to RERA, the buyers can claim a full refund of the money deposited with interest if the builder fails to deliver the project in the said time.


If you opt for under-construction property, choose a reputed lender to ensure that you get the loan amount on time. Also, make sure that you submit the updated documents required for home loans. Wait no more. Buy your dream home, today.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.