When it comes to buying a home, financing turns out to be a huge concern for every buyer. It’s a decision that affects your financial balance and requires meticulous planning. However, with banks offering a pre-approved home loan for prospective buyers, the process of home buying seems like a breeze.
What’s a pre-approved loan?
A pre-approved home loan lets you know the amount of loan you’ll be eligible for when you finalise a property you are interested in investing.
Once you have an idea of the amount you are eligible for, you can budget and plan your finances in an appropriate manner.
What’s the process for a pre-approved home loan?
Barring property documents, the process for getting a pre-approved home loan is similar to the one undertaken for a regular home loan.
Documents required:
- Your income tax returns
- PAN card
- Address proof
- Bank account statement
- Salary slips
Based on your financial background and credit history (CIBIL score), a lending institution determines if you are eligible for a pre-approved loan. The lending body decides upon the final loan approval limit after subtracting the amount of any existing loan(s) taken by the applicant. Though a processing fee is also charged during the exercise, the same is adjusted when the loan is disbursed.
Post the completion of the necessary formalities, banks provide a buyer with an approval letter that mentions the amount that’s been sanctioned to the applicant. While it varies from one lending institution to another, at most, this letter is valid for six months, after which one has to undergo the whole exercise again. Not only that, you need to pay the processing fee again as the fee of the previous pre-approved loan application isn’t adjusted during the new process.
What’s the advantage?
While buyers tend to be in the dark when it comes to their loan application being sanctioned, a pre-approved home loan acts as a letter of assurance for a buyer.
Also, knowing your loan limit narrows your search and gives you the freedom to explore all the options that are available within a certain budget.
When it comes to a developer, a pre-approved loan also acts as a statement of confidence and increases his/her trust in the buyer.
Additionally, pre-approval also gives you better negotiation powers as it allows the developer to see you as a serious buyer. As a buyer, once you finalise a property, loan disbursal is fast-tracked as a lending institution only needs to verify the documents of the said property before giving its final stamp of approval.
It’s essential to undertake the exercise only when you are serious about home buying. While it’s fascinating to want to have an idea about your loan-worthiness before you head out for house shopping, multiple pre-approval processes are not only a waste of time and money, but they also have a negative impact on your credit score. It’s advisable to go for a pre-approval only after you have zeroed in on some properties that are likely to fall within your budget.
