When should a home buyer opt for a pre-approved home loan?

[ecis2016.org] A pre-approved home loan lets you know your eligibility and plan your finances accordingly. Should home buyers, hence, opt for this mode of financing whenever possible? Not before you check out the other associated costs

A pre-approved loan is an instrument that is used by banks, to attract customers to avail of its facility without much hassle. Generally, there is a fair amount of uncertainty for home buyers, till the bank approves of a loan amount. A pre-approved loan bypasses such uncertainty and directly offers its customers with a home loan facility. The loan’s sanction is based on the primary check done by the lending institution, to understand the financial eligibility of the customer and is based on his/her repaying capacity and credit history.

You are reading: When should a home buyer opt for a pre-approved home loan?

How can I get a pre-approved loan?

• A preliminary approval to the customer to avail of the pre-approved home loan.
• The customer has to provide the property details, once the purchase has been finalised.
• The financial institution will then verify the legal and title information of the property.
• Important conditions, such as interest rate, tenure, penalties, etc., are finalised.
• The loan is disbursed, if all papers are as per the norms

The pre-approval is valid for a limited period (approximately three to six months) and one would need to complete the transaction before the approval expires.

[ecis2016.org] Don’t bank on pre-approved home loans alone, for due diligence!

Advantages and disadvantages of pre-approved home loans

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“The biggest advantage of pre-approved home loans, is that they let you plan your finances. You get to know clearly how much loan you can avail. This helps you to look for a property that fits your budget, thereby, making your search more focused,” explains Adhil Shetty, CEO, BankBazaar.com.

“Having a pre-approved home loan also identifies you as a serious buyer in the eyes of the builder or the property’s seller, which can help you to negotiate for a better deal. Unlike standard home loans, during pre-approval, only the financial documents and credit record of the borrower are evaluated. This makes the process much faster,” he adds.

However, experts point out that if the interest rates fall, during the pre-approval and disbursal process, the customer may not be able to benefit from the reduced rates, as the rate of interest has already been decided on.

“In case the customer decides to not avail of the pre-approved home loan or if the validity period has expired, the processing fees paid by him are not refunded as a norm,” cautions Shaji Varghese, business head, PNB Housing Finance Limited.

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“This feature is applicable to all home loans across categories. However, a customer can always place a request, to extend the validity period if he has finalised the property against which the loan will be taken,” he elaborates.

Quick tips to keep in mind 

• Opt for pre-approval, only after selecting a few potential properties.
• Frequent applications can lower the credit score of the customer.
• Make sure you go through the terms and conditions for payment/prepayments very carefully.
• Understand the benefits, such as special or discounted interest rates and other offers clearly, before applying.
• Ascertain the applicable penalties and charges in advance.

Experts point out that customers can always avail of a pre-approved loan, when they intend to buy a home and warn that one should avoid buying a home just because a financing institution has extended a pre-approved home loan offer.

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