Here are the many pros and some cons of going for such an arrangement...
Buying a house and calling it "my home" gives a sense of accomplishment like none other. Lounging in your own space is ultimate luxury. Fortunately, we are living in a time when making this dream come true is possible, though it is no cake walk. Home loans do the magic!
Home loans are your saviour after you have decided on the property. But, you may ask, what about the period before that? It may take months or maybe even a year to locate that dream property.
Wouldn't it be convenient if you knew more about the funds you have access to? A definite yes!
In a situation like this, pre-approved home loans can help.
Read on to know more about it.
1. Clarity and confidence
If you have just initiated your home hunt or are planning to shortly, then now is the perfect time to approach lenders for a pre-approved home loan. It basically means that you convey your intention to take the plunge and buy a home soon. On that basis, the lender assesses your eligibility and confirms your access to funds along with the approximate cost of funds. This information will help you filter options better and conduct a more productive property search.
2. Eligibility evaluation: a reality check
Before issuing a pre-approved home loan letter, the lender does a thorough check on all the factors which need to be considered before extending a credit facility to you. This would include checking on your CIBIL score and CIBIL report, essentially to assess the credit history and behaviour.
Monthly pay slips will be checked for evaluating the repayment capacity.
Other credits availed, amount of the security to be provided, etc., will be considered to decide on your home loan eligibility. That will throw some concrete numbers and give a direction to your plan.
3. A better deal with the lender
When a lender grants you a pre-approved home loan, the chances of you getting a better interest rate on the loan, shoot up. From the lender's perspective, it basically means that you are a suitable borrower and an eligible one.
Plus you do intend to get the actual loan soon and that makes an ideal borrower profile for the lender. They will be willing to have such borrowers on board and granting a better interest rate will be a choice they'll make happily to close the deal.
4. More negotiating power
Consider this scenario. There are two customers, equally willing, to buy this beautiful home: one with a pre-approved home loan letter, and, another one, with a plan in mind to get a loan.
Not only has the former customer a better chance at grabbing the opportunity and claiming that dream house but that customer is also in a stronger negotiating position.
Home owners will be willing to pass discounts on seeing easy approved access to funds.
5. Save time and trouble
On finding the ideal property for you requirements, you can approach the bank and apply for the home loan. Since the assessment and other activities which require time will be already sorted, all you have to do is line up the actual documents and complete the paperwork.
The lender being familiar with your profile and history will be able to process the loan a lot faster than when a new borrower approaches.
6. Know when to get a pre-approved home loan
It's only when you are very sure about the home purchase plan that you must approach a lender for the pre-approved home loan. The lender would charge a non-refundable fee and attach a time limit for the validity of the pre-approved home loan.
For maximum benefits, you must consider these factors. Also, in case you don't avail the home loan during that duration, it is going to show in your CIBIL report. Definitely not ideal for your future lender to know that you are somebody who looks around for credit often…
While you are getting your home loan pre-approved, you must remember that the numbers are subject to revision and the final decision for disbursal still lies with the lender. We hope this article will help you in the home hunt process. Good luck with finding the perfect home!
Photograph: ZeroOne/Creative Commons
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.