Every house owner will start the process of planning the house purchase at some point. Planning will definitely include the prospect of estimating the property cost one can afford after considering the down payment and financing available.
At the planning stage, you may not figure out the actual loan amount you may get. Instead, you can get an estimate of the loan amount in the form of a pre-approved home loan.
Here is everything you need to know about pre-approved home loans.
What is a Pre-Approved Home Loan?
A pre-approved home loan is an in-principle approval for a loan based on your income, creditworthiness, and financial situation. They are generally taken before selecting a property. Unlike a regular home loan, a pre-approved home loan does not scrutinise the technical and legal aspects of the property you wish to purchase.
This is just an offer for a loan and not the actual approval on the home loan. The offer will remain valid for a specified time period, usually three to six months. Within this validity period, you will have to finalise a property and submit the property-related documentation for verification by the lender.
Advantages of a Pre-Approved Home Loan
Since the bank knows your income and commitment details in the pre-approval stage, half the process is already done. Once the bank verifies the property and its documents, the loan amount will be disbursed.
Since the pre-approval offers a defined structure in terms of the loan amount and a time window, you will stay focused on house hunting within the boundaries drawn. Knowing your boundaries will make it easier for you to hunt for the house.
Since you estimate how much loan you can expect and how much down payment you can manage, you can negotiate with the builder or the seller better.
The way a lender evaluates your financial position will let you know where you stand in getting credit. Based on this evaluation, you can plan your finances better and save up for the down payment over the validity period.
Further, pre-approved home loans carry a lower interest rate as compared to regular home loans. However, the processing fee charged for pre-approval may be non-refundable whether you proceed with a home loan or not.
A Few Quick Tips
Summing Everything Up
While a pre-approved home loan can be a good option, make an application only when you are sure about purchasing a house. Pre-approval on a home loan does not guarantee the loan. Factors, such as property and related documents and due diligence guidelines of the bank, play a crucial part in the actual home loan approval.
Property finalising and the loan application should be done within the sanction period. Apart from these factors, a pre-approved loan gives a defined structure for the house hunt. Pre-approval of home loans also makes loan disbursement convenient, easy, and quick for the applicant.
For any clarifications/feedback on the topic, please contact the writer at apoorva.n@cleartax.in
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