Is pre-approved home loan the best option?

Image: Buying a home is a time-consuming process.

The process of buying a home has two major components; one, searching for finances, and two, searching for home.

Both of these are time consuming and require enormous efforts.

Usually buyers get bogged down by details. How wonderful it will be if someone can assure us with finances and all we have to focus on is to find a nice home.

Pre-approved home loan provides us precisely that option.

Pre-Approved Loan - The concept

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.

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Is pre-approved home loan the best option?

Image: Pre-approved loan is more serious in nature.

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 do your baking with particular bank, the bank usually doesn't charge anything.

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Is pre-approved home loan the best option?

Image: Pre-approved loan is for a specified period.

Even if the banks charge a fee for pre-approved loan, the amount is less than Rs. 2,000 for 10-40 lakhs.

Advantages

The banks give you pre-approved loan letter 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.

Pre-approved loan letter provides immense advantages to the borrower, some of which are mentioned below.

1. Better negotiation power: The home buyer now has better negotiation power with the seller.

The home buyer has the money to buy and the builder knows it.

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Is pre-approved home loan the best option?

Image: It incentivises builder to close the deal.

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.

2. 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.

3. More time to focus on home: Once the loan is pre-approved, you have more time to focus on searching for your home.

4. Better option: Many home buyers go to see home without doing any research on loan options.

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Is pre-approved home loan the best option?

Image: There are pitfalls in pre-approved loans.

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 of pre-approved loan option

- 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 time lines attached to your pre-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.

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Is pre-approved home loan the best option?

Image: Look for all options before taking the loan.

While it is true that you can get pre-approved loan faster from your bank, there is no stopping you from looking at other options.

Remember that with an excellent credit history too your negotiation power is vastly increased.

Log on to www.cibil.com 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.

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Is pre-approved home loan the best option?

Image: Buying a home is the biggest investment.

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.

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