Advantages of Pre-approved Home Loan
What is a Pre-Approved Home Loan? Pre-Approval is referred to as an evaluation of a borrower who has the potential to borrow funds and will be in a position to pay it back with interest. This evaluation is done by the lender. The lender glances at the income and expenditure of the borrower and draws conclusions about whether to lend them the money or how much money to be given.
This process, when applied for a home loan, is considered to be pre-approval for home loan. It is, in a way, a green signal given by a bank for certain amount of home loan to an individual. In order to qualify for pre-approval of the loan, you will have to furnish a number of documents and information to the bank such as your income proof, salary slip, income tax returns, PAN Card, identity proofs, bank account statements etc.
Banks or any financial institution, prior to setting a pre-approved limit for your home loan, would also scan through your CIBIL Report. This is done in order to have a clear view of your credit history. This help in determining whether you qualify for the pre-approved loan or not.
Once the bank or financial institution that you have approached is through with its proceedings and enquiries about your creditworthiness and credibility, you will receive a letter from the institution. This letter would clearly define the amount of home loan for which you have received a pre-approval and details about its validity.
Note- It is important to know that a pre-approved loan has validity. In most cases the loan is valid for approximately six months. If you do not act on it within the span stated you need to follow the process again.
It is also important to understand that pre-approval of loan does not make it mandatory for the banks to provide loan to you. The principle approval of the home loan is subject to the verification of property and property documents. If there is any flaw then the bank holds the right to reject your loan thereafter.
There are banks who will charge you with pre-approval processing fees which would be later refunded in case your loan gets processed whereas few banks and financial institutions do not charge any fees for the purpose.
Advantages of a Pre-Approved Home Loan
- Time Saving – With the letter/certificate defining your limit of pre-approved loans, you can narrow or widen your search for your dream home, which, in turn, serves to be time saving. You can give specific instructions to your real estate agent asking him to give you details regarding homes available within your budget. This would reduce hassle of going through details of every upcoming society or location. You will be able to zero in the homes that are within your reach.
- Enables You to Examine the Right Home Thoroughly – When you have a pre defined limit of your finances you will be in a position to minutely observe every detail of the properties you go hunting and will be able to strike a better deal. When you do not have a pre approved loan your time and energies are consumed in calculating whether the loan will suffice you through or how will you manage the overhead expenses etc. when you have a specific limit in your hand you can observe other details like parking space, room space, kitchen area, drainage etc and get yourself the best possible property.
- Confidence – A pre-approved loan gives you confidence. Once you have decided which home to buy you cannot be fooled by agents and other intermediaries that you cannot qualify for the house etc. Your anxiety of last minute disapproval of loan gets minimized.
- Negotiating and Bargaining Power – Many sellers feel hesitant in offering homes to those whose loans are not pre-approved as the chances of the loan application being approved are uncertain. Once your loan is approved and if you approach any seller he will be more than willing to give you your dream home for less than the list price also because he is sure that you have the money at your disposal and that he can move that home in the pending list without fear. You, thus, gain increased negotiating and bargaining power if you have the letter of pre-approved home loan in your hand.
- Closing Period or Loan Disbursal – When you have a pre-approved loan at your disposal your waiting period or window period, as it is referred to at many places, which is the time consumed in getting the loan application processed, is reduced from 30 days to approximately 2-3 weeks. Working on the application of pre-approved loans and going forth with the registry of the same becomes far easier, less time-consuming and less complicated.
It is, however, very important for you to analyze your home requirements before you opt for a pre-approved home loan. Save yourself from landing in a situation wherein the loan is at your disposal but you are not able to finalize your property within the stipulated time frame.
Interest rates also keep fluctuating as per the market sentiments and the interest rate would be determined for you only after you have selected your property and the property documents are verified by the bank.
It is advisable for you to opt for a pre-approved property along with a pre-approved loan. This would surely speed up the home purchase process and as the pre-approved loan reflects your creditworthiness, pre-approved property speaks favorably for the builder, thus, reflecting his credibility.
It goes without saying that while you go hunting for your dream home, it is important for you to also analyze the available options of banks or financial institutions offering pre-approved home loans to you. This would surely help you in cracking a good deal.
Contributed By: Megha Sharma
Megha Sharma works as a guest lecturer in Delhi. She holds an MBA & Doctorate from the UPTU. With extensive knowledge and experience in various financial products, she also works as a consultant in banking & finance domains wherein she offers advice to her clients in managing personal finance.