A pre-approved loan is –
The benefits are –
A pre-approved home loan is an in-principal approval for a loan given on the basis of your income, creditworthiness and financial position. Generally, pre-approved loans are taken prior to property selection. Some lenders also provide the facility to get an instant e-approval by allowing you to make an online application for the home loan.
Basics of Pre-approved Home Loans
A pre-approved home loan is an offer for a loan based on your repayment capacity. The disbursal of the home loan is subject to you identifying a property within the validity period of the pre-approved loan and the property meeting the lender’s legal and technical due diligence requirements. For example, while you may have a pre-approved loan offer in hand, the lender may not disburse the home loan in case the property titles are not clear, or the ownership structure does not fall within the lender’s permitted norms.
A pre-approved loan offer is valid for a limited period (usually three months). You have to finalize the property within the validity period failing which you will have to get your loan application reappraised at a nominal cost by providing your latest income documents to the lender.
The loan terms (interest rate, EMI and tenure) indicated in the offer may change later. The final loan terms are worked out at the time of disbursement. For example, by the time you choose a property, the interest rate scenario might have changed. Subsequently, the terms of your loan may also change as under:
Terms At the time of sanction (Jan 2021) At the time of disbursement (March 2021) Loan amount Rs.10 lakh Rs.10 lakh Interest rate 6.80% per annum 6.70% per annum Loan tenure 30 years 30 years EMI Rs. 6520 Rs. 6453
By having a clear picture of your finances – both your home loan eligibility and the amount you can arrange from your own sources, you will have in place a budget for your home purchase. Accordingly, you can focus your search on affordable properties without wasting time and effort in considering unreasonable deals.
With a pre-approved loan offer in hand, you have better bargaining power with the developer or property seller. You are considered to be a serious buyer and developers or sellers may even offer you preferential treatment and attractive discounts due to your ability to make faster payments compared to other buyers.
Generally, during the pre-approval stage, only your income documents are evaluated. While prior to loan disbursal, property documents are verified by the lender. As lenders finish the credit appraisal in advance, the turnaround time on the entire loan process (from loan approval to disbursement) is reduced. Quick processing of the loan facilitates easy purchase of property. You do not have to miss out on a good property deal or worry about increase in prices.
While a pre-approved loan is a good option in most cases, it is preferable to make an application only when you are sure that you want to purchase a home. It’s also preferable to do a bit of research and then make an application with just one or two lenders. Multiple enquiries without approvals may have an adverse impact on your credit score, as the lenders may think that you are not serious about the loan.
In a pre-approved home loan, the lender provides a loan sanction letter stating that you would in-principal be able to avail of a loan up to a certain amount subject to meeting certain terms and conditions. This would not only help you to stay focused on your property search but also give you the essential funding power required for negotiating a favourable deal. As the demand for housing increases, good property options will be limited. In such conditions, you can book your dream home with relative ease by taking a pre-approved home loan.