What is a Pre-Approved Home Loan?
A brief introduction to pre-approved loans:
Let us consider that you want to purchase a home. Imagine that you have zeroed in on one of the choices you considered and the one you chose gets sold off to another buyer before you could get an approval for the loan? It would break your heart and your sentiments on buying a property at that time. This is where the concept of pre-approved loans comes in. With a pre-approved loan, you can get the loan approved before zeroing in on a property. You might have even got offers from banks for a pre-approved loan with quick processing and low rate of interest with fewer documents for approval. While I was about to buy one of the flats for sale in Pallavaram, I wanted to know more about these loans and these are the few points I derived from my research.
Conditions for availing a pre-approved home loan:
To put it in clear times, this type of loan is an in-principle approval by the bank based on the person’s profile and history. Banks scrutinize the EMI paying capability by considering the income, present EMI payments and net worth. Then, the bank lends a home loan amount within a specific time frame. Even though the idea of this seems great, there are certain drawbacks that should be clearly evaluated before you decide to avail a pre-approved loan. While purchasing one of the new flats for sale in Chrompet, Mr. Abhinav was lucky enough with a good credit score and profile to avail a pre-approved home loan. But this smooth process cannot be expected all the time.
Quirks of this type of loan:
- It is vital to take into mind that this type of loan is not completely guaranteed. Finally, the banks decide whether they can provide the loan or not. Banks have all the legal ability to reject the loan based on their own terms and conditions.
- At times, even after the bank approves the loans, there are other things like rate of interests and terms & conditions to hinder the expectations of the one getting the loan. As a borrower, you would not have clarity on how much you should pay back and when.
- The terms and conditions that the banks provide might also be subject to changes under their clause.
- And to make it worse, documents are sometimes demanded again during disbursal.
- You should also consider whether the required amount is more than the pre-approved loan amount. When the required amount is higher, the budget planning can be disrupted as you have to make a higher down payment.
- These loans do not have a fixed rate of interest but they are floating rates. You should keep that in mind and plan accordingly if you are getting a pre-approved loan.
- Processing fees levied while getting a pre-approved loan are not refundable. It is levied no matter what if the loan is sanctioned or not. As the loans are only valid for a certain period, you should also be conscious of the last date for disbursal application. After the last date, the whole process becomes invalid and you should start all over again.
- Apart from these, your credit score would also be affected by taking this loan. The credit gets blocked and you might find it hard to avail a personal loan from there. Even applying for a pre-approved loan many times affects your credit score considerably.
It is better to opt for a pre-approved loan only if you have decided on the property or home that you want to buy. These loans have the ability to ensure quick process and you can also bargain with the seller for a reduced cost with the funds you possess, instead of the seller to wait for the next buyer. Also read : Types of home loans in India