4 advantages of a pre-approved home loan
“As a special customer, we want you to have a truly successful life. We are therefore happy to inform you that you are eligible for a pre-approved home loan. How familiar does this sound to you? It is very likely that at some point in your life you received a letter or SMS congratulating you on your eligibility for a pre-approved loan.
A pre-approved home loan is granted to eligible consumers who have solid financial background. Simply put, this is a home loan offer based on your creditworthiness. Based on compliance with certain predetermined terms and conditions, financial institutions may grant such loans to potential borrowers.
Before you even get an offer, the bank has already assessed your financial history. For example, if you have a payroll account, the bank will have an estimate of your income and daily cash flow.
However, pre-approval does not guarantee an offer. It is simply an indicator based on your eligibility for a loan.
To get your mortgage approved, your banks run errands to properly authenticate and verify your financial history and assess the property you are going to buy. Even though there is no collateral for the final offer, a pre-approved home loan has certain advantages and gives the borrower an advantage when negotiating with the developer.
A pre-approved home loan can be very attractive to borrowers for its various benefits and features. Let’s understand why!
Best position to negotiate with the lender
Considering 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 takes you seriously for the purchase. In addition, even before negotiating with the lender, you may be offered competitive interest rates.
This is because the bank is assured of your finances and your ability to repay, and it is more likely to convert into actual buyers than just blanket inquiries. In addition to the low interest rates, you also have the option of choosing the loan repayment tenure which makes EMI easy to find.
Loan processing becomes quick and easy
Applying for a pre-approved home loan is faster and easier than a regular home loan. Since at the pre-approval stage the lender has already verified the borrower’s income documents, the loan dispersal process becomes easy and quick.
The only process left before the loan is disbursed is the verification of property documents and other legal aspects. As soon as these documents are verified, the sanctioned loan amount is disbursed.
Efficient property search
There is no feeling worse than not being able to get closer to the home you want to buy. But with a pre-approved loan, a borrower is in a better position to search for a suitable property because you are aware of your budget. For example, a person with a pre-approved loan of Rs 1 crore will look for a house in the Rs 80-90 lakh.
Better financial planning
When you apply for a home loan, you usually have no idea your home loan eligibility and sometimes end up with a rejected application. For example, depending on a person’s financial history such as credit, income and other factors, the individual might only be eligible for a home loan of Rs 80 lakh, however, sometimes the individual would request a larger mortgage 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 allows you to plan your finances accordingly. As you would have the right idea of your eligibility, you will narrow down the ownership options accordingly.
This saves you time and effort that could have been wasted inspecting a property that was over budget.
The bottom line
A pre-sanctioned offer is the best option for many borrowers because it is the least risky way to end up in an eligibility tangle when you depend on a loan to buy a home.
Besides many benefits, the best part is that you are more aware of your mortgage eligibility and spending limit. This way, it not only ensures that you get your home in the current market scenario, but also makes you a highly credible buyer that any seller will take seriously and come up with a deal.
(By Atul Monga, Co-Founder and CEO, BASIC Home Loan)