Buying a home is a huge investment, with financial aftermath for many years to come. Hence to have a prior approval for home loan in such cases gives an upper hand while going for the big purchase.
What is a pre-approved home loan?
A pre-approved home loan is essentially an ‘in-principle go ahead’ given by a bank for a particular loan amount. A robust process is followed by banks to determine the amount to be sanctioned. The customer is required to submit his/her financial information such as income tax returns, bank account statements, income proof, salary slips, identity proof, and PAN (permanent account number) card details among various other things. Banks will also obtain data from CIBIL to check the customer’s credit history.
Once these background checks are in place, the bank pre-approves the loan and it will hand over a letter stating that an in- principle approval of a particular home loan amount has been granted which will be valid up to a particular period. Some banks will also state the rate of interest at which the loan will be provided. This means the interest rate at the time of pre-approving of the loan will be applicable.
Usually, a pre-approved loan is valid only for a particular period, six months in most cases, after which the individual will have to go through the process again. Loan amount disbursement is also subject to verification of documents and the property. Also, several banks do charge a pre-approval loan processing fee, which is refunded after the loan is granted to the customer.
Pre-approval does not imply guaranteed sanction
Though the customer may have been made an offer for a loan, the bank is under no obligation, and sanctions are purely subject to successful verification of all relevant documents. So in reality, the requirements of a pre-approved loan are quite similar to a regular loan. One would still be required to provide their bank account statement, PAN details, salary slips and tax returns details. If a person is already an existing customer with the bank, this procedure could be a bit easier as they already would have the information.
What advantages does a ‘Pre-Approved Loan’ offer?
1. Narrow down the home search
Getting a loan pre-approved will help the customer to target a house that is within the budget. It helps in planning for any property investment and the extent of loan that one can depend upon. This will prevent the customer from avoiding houses bigger than the budget.
2. Negotiation power
Holding such a sanction letter from a bank improves the negotiation power with the developers from whom one can negotiate better prices. Since the developer is assured that the buyer is serious and the loan would be indeed sanctioned in quick time, he should be ideally willing to negotiate.
3. Real estate consultant’s role
If the property has been sought through a real estate agent, he would be proactive in providing some good options since he would also be nearly sure of the purchase and his subsequent commission.
4. Quicker loan disbursal
It also reduces the documentation process which otherwise would have been cumbersome and time consuming. With the loan sanction turnaround time reduced to almost one-third of the normal loan processing time, it makes sense to have a pre-approved loan from one’s bank.
Things to remember
1. The customer should evaluate his exact need clearly before opting for a pre-approved loan. it should not be a scenario where he is unable to locate the house of his choice for purchase within the stipulated period of six months.
2. Also, interest rates might change depending on market conditions during the time of the actual loan disbursal, which will not happen until the customer zero in on the property and the property documents are verified by the bank.
Opting for a pre-approved property with a pre-approved loan might enable a quick home purchase process. The pre-approved status for your loan asserts the customers credibility and repayment capacity while the same for the property indicates the credibility of the builder.
