A pre-approved home loan offer is a home financing option that has already been sanctioned in-principal even before the borrower can start the process of finalising the property deal. The process is similar to getting a regular loan sanctioned, except that you can get the offer prior to identifying a property.
Once the validation process is completed in its entirety, the lender will issue a letter of pre-sanction home loan offer to you. This will come with a timeframe of 6 months, within which, you must finalise the property deal. If in case you fail to get the property within the stipulated time period, you must reapply since the processing fee is neither returned nor adjusted.
Quick Loan Disbursal: The verification process is done in the pre-approval stage itself, your loan amount will be disbursed quickly once you finalise the property. This facilitates the need for a quick transaction when it comes to finalising the property in a limited time period.
Easier House Hunting: Soliciting a pre-approved home loan will help you gauge your budget, making searching for the right house easier. There are many types of residential properties viz. villas, flats, independent houses and many more. Based on your financial capacity, you can narrow down your research.
Better Negotiating Power: You can leverage your sanction letter to negotiate with the builders or real estate agents. This is because you will be taken more seriously due to the evidence of your financial capability. Hence, this is another essential benefit of pre-approved home loans.
Financial Planning Becomes Easy: Again, pre-approved home loans will provide you insights regarding your financial standing. This information will help you plan and manage your finances better.
The application process for a pre-approved loan is almost as same as that of a normal house loan. However, you will be required to furnish a handful of documents in order to successfully secure a pre-approved home loan. They are:
Identity Proof: Documents which can work are your PAN card, your Aadhaar card, your passport, your driver’s licence or your voter’s ID, among others. You must furnish one of them.
Address Proof: Documents such as your PAN Card, your Aadhaar card, your Drivers licence and your passport can be submitted by you as a proof of your current address.
Pay slips going back at least three months
A copy of your form 16
Income tax returns (ITR) going back at least 3 years
Banks statements going back at least 6 months
A bank cheque through which you will pay the non-refundable processing fee
Becoming a homeowner will be among the biggest highlights of your life. And, it is quite likely that you will need to opt for a home loan to fund your purchase. It could take a lot of time to get a home loan if you are starting the application process from scratch, given that the home loan process is quite exhaustive. Some other things that make a home loan application process an exhausting one are as follows:
You must submit a lot of documents when applying for a home loan
You must follow-up frequently with the concerned officials
Your loan application could get rejected even after submitting all the required documents
You will personally have to look for and then zero down on a property before applying
After you select a property, the lending bank or the housing finance company will perform several security and valuation checks of their own. They do this to ensure that the property you plan on buying is worth a loan.
But, when you go for a pre-approved home loan, you will be able to take advantages of the following things:
When you are pre-approved for a home loan, you will know the maximum amount you are eligible for. Additionally, since banks generally tend to list the properties that they will approve home loans for on their website, you can search the same and pick a home accordingly.
In the case of a pre-approved home loan, the only documents you must share will be the ones pertaining to your property. This means that you will spend less time applying for one.
A bank will only give you a pre-approved home loan on a house that has already passed their quality and valuation checks. This means that there is no risk of the rejection of your home loan application on the basis of the construction quality of the property.
You can start searching for the property after you have submitted the required documents to apply for a pre-approved home loan. In the case of a normal home loan, it is the other way round.
Some of the things you should be mindful about while applying for a pre-approved home loan are:
Potential Harm to Your CIBIL Score: The lenders will perform a hard inquiry for your CIBIL score. If you have applied for a number of loans and credit cards in the recent past already, it might just bring down your CIBIL score. Additionally, if your home loan application is rejected, your CIBIL score will fall further.
Possibility of Rejection: Even if there are better chances of you getting a pre-approved home loan than a normal one, your application can still get rejected. A lender may reject the same at their own discretion or due to factors such as inadequate income, unhealthy repayment history or a CIBIL score that does not meet their credit score criteria.
Limited Selection of Properties: The bank will offer you a pe-approved home loan for only a handful of properties which have passed their own set of checks. This means that your choices for a home that you can buy from the pre-approved home loan money are fairly limited.
Same Interest Rate May Apply: The interest rate applicable at the time of you receiving the offer may be the same at the time of you applying for the pre-approved home loan. This implies that if the housing loan interest rates fall by the time you actually apply, you will not be able to take advantage of the reduced rates.
Limited Period Offer: Pre-approved home loan offers come with an expiration date of anywhere between 3-6 months from the time you get the offer. If you want to purchase a home through a housing loan and want to stand a better chance of getting one, you will need to apply within that particular time period.
You can get pre-approved home loans by simply providing the property details once the purchase has been finalised. Then, the lending bank will scrutinise and verify the title and legal information pertaining to the property. Post all of the mandatory checks, your home loan will be approved. But, the same will happen solely on the basis of your eligibility.
If you are a resident Indian who is between 21-70 years of age, you are eligible for a pre-approved home loan. If you have a long-standing relationship with the bank that is giving you a home loan, that can help your eligibility too.
Banks will decide if you are eligible for a pre-approved home loan on the basis of your monthly/yearly income, age, credit history, and past repayment behaviour. Other factors that banks will take into account while determining your pre-approved home loan eligibility are your current debt obligations, your credit utilisation ratio and your past relationship with the lender, if you have been dealing/banking with them already.
The only disadvantage of pre-approved home loans is that if the interest rates fall while the loan is in the pre-approval and disbursal stages, you may not be able to benefit from the same.