Buying a house is a dream come true for several people. However, due to the rising price of the property every minute, only a few are able to afford such a whopping amount. In such situations, buyers turn to banks for home loans. And to make the process easy and comfortable for you, many banks and financial institutions offer pre-approved home loans to their customers.
What does pre-approved home loan mean?
A pre-approved home loan is an in-principal approval given by a bank or lending institution based on your profile. The decision is based on your EMI repayment capacity and your current EMI outflows (in respect of the ongoing loans). On the basis of this, a home loan is advanced to you which has to be utilized within a specific period of time. The procedure for a pre-approved loan is the same as a regular home loan, but you are not required to submit property documents.
The pre-approved home loan requires your bank statements, income tax returns, salary slips, identity proof, income details, and PAN proof. Your credit history is obtained from CIBIL. Once all the requirements have been fulfilled, your home loan is pre-approved and you can utilize the offer for a period of 6 months.
Advantages of a pre-approved home loan
Here are a few advantages of a pre-approved home loan:
1. Faster loan disbursal: Since most of the verification is done during the pre-approval stage, your loan is disbursed as soon as the property is finalized. Banks in such case, only verify the property documents and give the final approval.
2. Focused house hunt: The housing market offers a host of options to buyers such as apartments, independent villas, floors, etc. Knowing your eligibility beforehand helps to choose the property falling under that budget category. This saves a lot of effort and time as the properties falling out of the scope will not be considered.
3. Better negotiation power: With a sanction letter in hand, you will be in a better state to negotiate with your builders or sellers. The seller will take you more seriously vis-a-vis other prospective buyers if you have a pre-approved offer.
4. Better planned finances: One of the most important benefits of a pre-approved loan is that it makes you aware of your financial standing. It gives you an idea about how much you currently have and how much you need to borrow. Further, you can then plan how much more money you need to save if you wish to make a higher down payment and take a lesser loan.
Important things to keep in mind when availing a pre-approved home loan:
• Opt for pre-approval only after selecting a few properties.
• Frequent applications can lead to a poor credit score.
• Read the terms and conditions for payment/prepayments very carefully.
• Check for penalties and charges in advance.
• Check for benefits such as special or discounted interest rates and other offers clearly.
Conclusion: Hence, a pre-approved home loan gives you a head start that a regular home loan doesn’t. You can start planning for your home well in advance and be ready to purchase it at the right time without having to deal with a last-minute loan rejection.