A pre-approved home loan is given to eligible consumers who have a sound financial background.
“As our special customer, we want you to have a truly prosperous life. And, so we are happy to inform you that you’re eligible for a pre-approved home loan.” How much does this sound familiar to you? It’s very likely that sometime in your life you might have received a mail or an SMS congratulating you on your eligibility for a pre-approved loan.
A pre-approved home loan is given to eligible consumers who have a sound financial background. Simply put, it is an offer for a home loan based on your creditworthiness. Based on fulfilment of certain pre-determined terms and conditions, financial institutions can provide such loans to potential borrowers.
Even before you are made any offer, the bank has already assessed your financial track record. For instance, if you have a salary account, the bank will have an assessment of your income and your daily cash flow.
However, the pre-approval doesn’t guarantee an offer. It is merely an indicator based on your eligibility to get a loan.
To get your home loan approved, your banks run errands to do proper authentication and verification of your financial background and assess the property you are going to buy. Even though there is no guarantee for the final offer, a pre-approved home loan has certain advantages and gives the borrower an upper hand when negotiating with the developer.
A pre-approved home loan can be quite appealing for the borrowers for its various benefits and features. Let’s understand why!
Better position to negotiate with the lender
Considering the fact that your home loan has already been approved by the bank, this will give you the power to negotiate with the lender. Negotiating becomes easy here because with a sanction letter in hand the bank is taking you seriously for the purchase. Also, even before you negotiate with the lender, you might already be offered competitive interest rates.
This is because the bank is assured about your finances and your ability to repay and they are more likely to convert into actual buyers than just general enquiries. Along with the low-interest rates, you also get to choose the tenure of repayment for the loan that makes for pocket-friendly EMIs.
Loan processing becomes easy and fast
The application for a pre-approved home loan is faster and simpler than a regular home loan. Since at the pre-approval stage, the lender has already verified the income documents of the borrower, the process of loan dispersal becomes easy and quick.
The only process left before loan disbursal is the property document verification and other legalities. As soon as these documents are verified, the sanctioned loan amount is disbursed.
Effective property search
There is no worst feeling than not being able to close in on the house you are eying to buy. But with a pre-approved loan, a borrower is in a better position to search for a suitable property as you are aware of your budget. For instance, a person with a pre-approved loan of Rs 1 crore will look for a house within Rs 80-90 lakh.
Better financial planning
When you are applying for a home loan, you mostly have no idea about your home loan eligibility and sometimes end up with a rejected application. For instance, as per a person’s financial record such as credit, incomes, and other factors, the individual might be only eligible for Rs 80 lakh home loan, however, at times the individual would apply for a larger home loan amount, such as, say Rs 1.2 cr.
This way you are more likely to end up with a rejected application. However, the pre-approved home loan makes you plan your finances accordingly. As you would have the right idea of your eligibility, you will be narrowing down the property options accordingly.
This helps save time and effort for you that could have been wasted on inspection of a property that was out of the budget.
The Bottom Line
A pre-sanctioned offer is the best option for many borrowers as this is the least risky way to get into an eligibility tangle, when you are dependent on a loan to buy a home.
Apart from many advantages, the best part is that you are more aware of your home loan eligibility and spending limit. This way it not only assures you to get your home in the current market scenario but also makes you a highly credible buyer whom any seller will take seriously and offer a deal to.
(By Atul Monga, Co-founder & CEO, BASIC Home Loan)