Getting Pre-approved for a Home Loan in India
Meaning of Pre-approved Home Loan – Pre-Approved Home Loan can be defined as the evaluation of a person who wishes to borrow money for buying a house by a lender. This evaluation helps the lender to know the financial history and credit worthiness of the borrower and he is able to ensure whether the borrower would be able to return back the amount borrowed with interest within the stipulated time frame.
The flow of income and the outflow in form of other debts and expenses is taken in to consideration along with the CIBIL Report of the borrower after which the lender decides whether credit should be given to the borrower or not.
Now here’s a situation. You have zeroed-in your dream home/property that would amount Rs 50 Lac and now you decide to apply for a home loan. During the process of home loan application the bank that you have approached after evaluating your credit worthiness sanctions you a home loan of Rs 30 Lac. Now, it is a painful task to arrange the remaining amount.
So, in order to avoid such a fix it is advised you should first check whether you qualify for a particular amount of loan or not. This would not only help you in planning your finances accordingly but will also save a lot of time and emotional trauma.
The question arises, “What is the eligibility criteria for getting pre-approved home loan?” Well, there is no thumb rule for that. You qualify for a pre-approved loan generally with the bank with which you have a good relationship. The bank that has your salary account or your savings account or holds all your business and family accounts would be the first one to offer you a pre-approved home loan depending on the income or cash flow (as the case maybe) in the account.
Your pre-approved limit for a home loan might also be based on your existing loans with a specific bank or amount of funds that you have parked in your savings account or in instruments like fixed deposits etc. When you are already an existing customer of the bank which has offered you the loan, it becomes easier for the bank to analyze you credit worthiness as well as your identity.
So the pre-approved limit for a loan that you might qualify for depends primarily on your banking relationship with the bank. According to it, the bank determines a pre-approved limit for your loan. However, pre-approved loan is no different from a loan for which you may visit a bank. Pre-approved loan just states that you are eligible for a certain amount of loan but not necessarily means that you will get the loan.
In order to avail the loan you will have to follow the process of the bank and will surely have to provide the bank with all the necessary documents and proofs only after which your loan would be disbursed. However, pre-approved loans have an edge when it comes to processing of the loan. Surely, the processing would be quicker, simpler and the paperwork can be done with ease. The interest rates can be negotiated more comfortably and the processing fees maybe reduced.
The process of pre-approved loan offers also forms a part of cross-selling techniques of the banks and other financial institutions. So, it is not necessary to go with the bank that offers you a pre-approved loan. You may hunt for better rates in the industry as the rest of the process of home loan remains almost the same.
Documents Required in Case of Pre-Approved Loans – When you are an existing customer of the bank and you have qualified for a pre-approved loan then you would be required to produce the following documents in most cases. However, the required documents may vary from bank to bank.
- Bank Account Statements
- Id Proof
- Address Proof
- Income Proof
- Salary Slips
- Income Tax Returns for 3 years
- Pan Card
Advantages of Pre-Approved Home Loan
1. Determines The Loan Amount - The very first advantage of a pre-approved home loan is that it gives you a clear picture of what you can borrow or what you will get if you apply for a loan with a bank. This would help you to know exactly how much you have and how much money you need to arrange from your other sources like borrowing from family members or relatives, pre-mature withdrawal of fixed deposits or other debt instruments or withdrawal of provident funds etc.
2. Narrows Search - When you are already aware of the amount that would be financed to you by the bank you will be in a position to narrow down your search. You would surely not visit properties that do not fall in the purview of your finances. Your search would become more centralized and “within my budget” thinking would automatically get triggered.
3. Negotiating Power - With a pre-approved loan letter in your hand you get in to a position where you can exercise greater negotiating power with the builder/seller. You will be able to send a clear message to the seller that you are a potential buyer and have means to close the deal. The seller would surely be willing to offer discounts or provide you better rates. You are sure to get an edge in the highly competitive scenario and will be able to crack a good deal in the event of a multi-offer situation.
4. Real Estate Agents – With a pre-approved loan letter in your hand the real estate agent becomes sure that he is going to earn a commission as your credibility becomes clear to him with the letter. Thus, he would place his best foot forward in order to get the deal closed as he is rest assured that you are a genuine buyer.
5. Loan Disbursal – We cannot deny the fact that the process of loan disbursal becomes less hectic, easier and quicker in case of a pre-approved home loan. Pre-approved home loan is sure to save your time and energy.
There have been cases wherein potential buyers have missed the opportunity of purchasing their dream properties because they were not able to arrange for funds. Pre-approved loans serve as a blessing in disguise in such cases.
However, you should not forget that once you opt for a pre-approved loan you need to finalize a property for yourself within six months of your acceptance of the loan or else the pre-approved loan offer lapses.
In this case one needs to exercise utmost care. If you opt for a pre-approved offer and are not able to finalize your property then you will have to pay the processing fees to the bank. And of course it is not wise to end up buying a house in haste merely to save the pre-approved loan offer. So exercising due diligence is all that can serve to be a true resort.
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.