What is a Pre-Approved Home Loan and How Should You Get it Done?

Purchasing one’s own house is a cherished dream for every person. You need sufficient funds at your disposal to turn this dream into reality. However, not everyone has the required cash flow and hence, one may choose to apply for a Home Loan with a reputed bank or lending institution.  But exhaustive loan disbursal processes or delays in loan processing can offset your plans, especially since real estate is a premium purchase and good deals may easily slip by owing to any kind of hold-ups. A pre-approved Home Loan can prove useful at such times, facilitating a quicker loan and home-buying process.   

What is a Pre-Approved Home Loan?

A pre-approved Home Loan is basically an in-principle approval for a Home Loan provided on the basis of your income, credit profile and financial standing. They are obtained prior to property selection and extend favourable benefits such as lower interest rates, easy documentation and swift loan processing. 

What is the Process of Availing a Pre-Approved Home Loan?

Individuals can secure a pre-approved housing loan in the following manner:

• One may put in a written application to the lender. Some lenders also allow you to make an online application offering instant e-approval facilities. Along with the application, the applicant has to submit documents regarding his/her income, residence, employment status, and more.  
• Lenders require these documents to examine the credit score and repayment potential of the applicant. They will assess your Home Loan eligibility based on numerous factors like your income, obligations, repayment capacity, credit score, etc.  
• Once the verification process is finished, the lender will issue a sanction letter with the loan amount and the applicable interest rate. This letter is valid for a specific duration, beyond which, the interest rates and/or the loan amount could change. 
• Generally, lenders levy a processing fee for extending pre-approved Home Loans. This fee is non-refundable and can be adjusted if you utilise the loan within the stipulated timeframe. 
• To avail of the loan, you need to choose a property before the expiry date of the sanction letter.  
• Upon selection of the house that you wish to purchase, you must furnish certain property-related documents so that the lender can carry out a thorough survey of the house according to its location, construction quality, amenities and more. The loan will be disbursed after completion of the property assessment.  

Additional Read: How to Pay Off Your Home Loan Quicker 

Benefits of a Pre-Approved Home Loan

Receiving prior approvals for a Home Loan can offer borrowers several advantages such as: 

Quick Disbursal Process

Your income documents are usually evaluated during the pre-approval stage. Later, lenders will verify the property documents prior to loan disbursal. As credit appraisals are conducted in advance, the turnaround time on the overall loan process – from loan approval to disbursal – is cut short. A speedy loan processing expedites trouble-free house buying without fretting over missed property deals or an increase in prices.  

Easy Property Search

A pre-approved loan gives you a clear picture of the available budget, which makes it easier to restrict your search to a particular price range, and not waste any time or effort on unreasonable property deals.  

Better Negotiation Power

You will possess better bargaining power with the developer or property seller if you hold a pre-approved loan offer in your hand. They will look upon you as a serious buyer and may offer preferential deals and discounts if they are assured of your willingness to make prompt payments.  

Effective Financial Management

Applicants can estimate their financial capability through a pre-approved loan and plan for the loan accordingly. If needed, you can draw a sizeable sum from your savings for a hefty down payment that will enable you to bring down your loan amount and the resultant EMIs.  

Additional Read: How to Check Your Bajaj Housing Finance Home Loan Status

Documents Required for a Pre-Approved Home Loan

Most pre-approved house loans are offered to existing customers, in which case, lenders already have your details in their database. But when they extend pre-approved loans to new customers, they will require the following documents: 

• Proof of identity
• PAN card or Form 60 (mandatory) 
• Residence proof 
• Employer-issued identity card 
• Bank account statements for the last six months 
• Loan account statements of the previous year (for individuals servicing other loans) 
• Salary slips for the past three months 
• Income tax returns or Form 16 of the last two years 

Note: Depending on your lender’s documentation requirements and eligibility criteria, you may need to present additional documents. 

Key Features of a Pre-Approved Home Loan

The striking features of a pre-approved Home Loan are: 

• A pre-approved loan does not amount to a Home Loan sanction from the lender. It is only an eligibility check and the lender retains the right to approve the Home Loan after shortlisting of property.  
• These loans entail lower interest rates but other associated charges may be attached such as processing fees, pre-payment and foreclosure charges, legal charges and so on; which need to be factored into the loan costs. 
• The validity of a pre-approved Home Loan ranges from 3 to 6 months as per the lender’s discretion. 

• Most lenders offer concessional interest rates on a pre-approved loan. 

Additional Read: Different Types of Home Loan Charges 

Things to Consider When Applying for a Pre-Approved Home Loan

Here are a few important considerations when you apply for a pre-approved Home Loan: 

Rejection of Loan Application

Financial institutions reserve the right to reject loan applications even if you are eligible for pre-approved offers. This may happen due to various reasons like a low credit score, unsatisfactory credit history, low income, etc. that can result in the rejection of your loan request. 

Loan for Authorised Properties Only

Your pre-approved loan offer may be denied if the house you wish to buy is not authorised by the lender. A loan is sanctioned only if the concerned property meets the lender’s qualifying standards. 

Specific Validity

Pre-approved loans are valid for a limited period. If you do not avail of the Home Loan or select a property by then, you will have to apply for a pre-approved offer again once it expires.   

Set Interest Rates

Lenders may stick to the interest rates extended during pre-approval. If the rates drop by the time you make a formal loan application, you could be denied the benefit of these falling rates. 

Additional Read: How to Get a Better Interest Rate on Your Home Loan 

To Conclude

It is advisable to put in an application for a pre-approved Home Loan only when you are sure of purchasing a house. Do your due diligence and scout around for various other pre-approved offers extended by different lenders to make an informed choice. Remember never to apply for a pre-approved loan with multiple lenders around the same time since a number of credit enquiries may have an adverse impact on your credit score.