If you are looking to apply for a home loan, you may come across the term ‘pre-approved home loan.’ If you are wondering what it is? Let us tell you.
As the name suggests, a pre-approved home loan is getting approval for the in-principal loan based on your income, financial profile, and credit score. Generally, people apply for a pre-approved home loan before they choose the property they want to buy.
Important factors to consider while applying for a pre-approved home loan
- The principal amount
A pre-approved home loan is a loan offer made to prospective borrowers by the financial organisation based on their repayment capacity. The loan disbursement is subject to finalising the property you want to buy within the validity period of the pre-approved loan and the property meeting the lender’s legal and technical requirements.
For example, even if you have a pre-approved home loan offer at hand, the lender may still not disburse the amount if the property in question does not have a clear title or any legal issue with the property’s ownership structure.
- Validity period
One of the critical aspects of a pre-approved home loan is the validity period. Generally, the lenders in India offer such loans for a limited period (it is generally up to three months). This means if you have a pre-approved home loan offer at hand, you must zero down the property you want to buy within the validity period.
If you fail to finalise the property within the said period, your loan application may get reappraised, and you may have to submit your latest income proof and other details to the lender.
- Loan-related terms and conditions
The terms and conditions of the loan, including home loan interest rates, EMI, duration, as indicated in the pre-approved home loan offer, could change later. This is because the lenders work out the final loan terms during disbursement.
Suppose by the time you finalise the property if the interest rate scenario changes or if the RBI has revised the base lending rate. In that case, the interest rate and other terms and conditions of your pre-approved loan may vary.
What are the benefits of a pre-approved home loan?
- Make property search more effective
By having a clear idea of the loan amount that you can borrow, you can plan your budget accordingly and look for a property that fits within your budget. This will immensely help you narrow down your choice, and you can avoid wasting time and effort on unreasonable deals.
- Negotiate with the lender
If you have a pre-approved home loan offer at hand, you would be in a better position to bargain with the developer or the seller of the property that you want to buy. Knowing that you already have a loan approved, the seller will consider you a serious buyer. In some cases, the developer or the builder may give you preferential treatment and may offer you an attractive discount in their bid to close the deal at the earliest.
- Quick loan processing
Generally, when the lenders offer you a pre-approved home loan, they evaluate your income-related documents. This saves a considerable amount of time during the disbursement stage; they may only verify the property-related papers.
As the lenders finish the credit appraisal process in advance for a pre-approved loan, the approval and sanction process are reduced. You can complete the home purchase faster without worrying about an increase in prices.
Thus, a pre-approved home loan is an excellent facility offered by financial organisations. If you have such an offer at hand, make sure that you know about its different aspects and make the most out of it.