The process of buying a home has two major components: One, searching for finances, and two, searching for a home. Both of these are time consuming and requires enormous effort. Usually buyers get bogged down by details. How wonderful it would be if someone can assure us with finances and all that we have to focus on was to find a nice home. Pre-approved home loan provides us that option.
Pre-approved loan
Before we discuss what the pre-approved loan is, let’s understand the close cousin of it, known as pre-qualification loan. This is an assurance from the bank by looking at the basic information that we provide. There is no check by the bank on the authenticity of the information, neither on our background such as credit history.
Pre-approved loan is more serious in nature. The banks verify the documents and credit history to approve your application and give you a pre-approved loan sanction letter. They approve this loan without due diligence on the home you will buy. Of course, the money will not be released until you select property and complete all formalities.
Costs and charges
Not all banks charge for pre-approved loan processing. If you have long relation with a bank, it usually doesn’t charge anything for processing. Even if the banks charge a fee for pre-approved loan, it would be less than `2,000 for `10-`40 lakh.
Advantages
The banks give you a letter sanctioning the pre-approved loan for a specific period of time for a sum of money at a specified interest rate. The actual terms can be different when you apply for the actual loan. The pre-approved loan letter provides immen-se advantages to the borrower, some of which are mentioned below.
* Better negotiation power: The home buyer has better negotiation power with the seller. The home buyer has the money to buy and the builder knows it. It incentivises builder to close the deal soon as he or she also knows that pre-approved home loan letter is for a specific period only.
* Faster processing: Once you have pre-approved loan, the real loan processing takes less time as the basic document verification and validation has been already done.
* Time to focus on home: Once the loan is pre-approved, you have more time to focus on searching for your home.
* Better option: Many home buyers go to see a home without doing any research on loan options. Once they like a home, the seller usually offers loan options which may be dearer to the buyer. Pre-approved loan is a much better option.
Pitfalls
* The biggest pitfall of pre-approved home loan is you tend to search for a home-based on your maximum eligibility rather than stick to a more stringent budget.
* You could be tempted to be in a big hurry due to the timelines attached to you rpre-approved loan, especially so with a teaser loan rate. As purchasing a home is a decision with a long term impact take the time needed for it.
* A pre-approved loan does not mean its the end of the road for your research. While it is true that you can get a pre-approved loan faster from your bank, there is no stopping you from looking at other options. Remember that with a good credit history your negotiation power is increased. Log on to www.cibil.com [1] for information on how to obtain your personal record of your credit report as this can be utilised to negotiate your loan rate with another bank if the need arises.
* Keep all your records in order as the actual loan approval process will be a lot more rigorous compared to the pre-approval process and interest rates and other parameters are subject to change at the discretion of the bank.
Buying a home is the biggest investment of our lives. It takes enormous amount of research, negotiation, hunting for finances, haggling for down-payment, brooding over location, and many small things that a home buyer wishes to see in a home. Pre-approved loan, to a large extent, takes away the hassle of finances and enables you to focus on your dream home. You should go for it. Hence pre-approved loan, to a large extent, takes away the hassle of finances and enables you to focus on your dream home. You should go for it.
(The writer is CEO of bankbazaar.com)
Links:
[1] http://www.cibil.com