Pre-approved home loans are home loans approved without considering a selected property. Such loans are sanctioned on the financial prowess and stability of the borrower and usually come with attractively lower interest rates, less documentation and approval within 48 hours.
With regular home loans, the banks evaluate the property documents and the borrowers’ financial background, all of which takes time and might not always result in timely approval and dispensation of home loans. You might lose the property of your choice if the home loan isn’t approved in time, leading to much heartbreak.
1. In such a situation, a pre-approved home loan which is faster and easier comes as a real boon. There is no loan-to-Value (LTV) calculation involved as there is no property to evaluate. Instead, the bankers check the applicant’s age, income, existing loans and obligations, net worth and credit history.
2. A pre-approved sanction is similar to a provisional letter and doesn’t always guarantee you are getting the loan amount upon finalizing on a property. This is because the bank will disburse the loan in accordance with the type of property you settle on and the bank’s prescribed LTV norms.
3. The advantage of having a pre-approved home loan is that your builder will know you are serious about buying the home and might give you a better deal or more sops. Another advantage is that disbursal of pre-approved loan is faster as the only thing left to appraise is the legal and technical aspects of the property.
4. Having a pre-approved loan also helps you to budget better for your home. You already know the down payment you can afford to make and once you know the loan you can avail of too, you are all set to choose a property that falls within this budget.
5. Keep in mind that the processing fee for the pre-approved loan is non-refundable in case the sanction letter expires (usually 3-6 months). You will have to pay another processing fee before final loan appraisement.
6. The interest rate at the time of taking the pre-approved home loan stands locked, no matter what the rate is at the final time of disbursement of the loan. This might work either way for a borrower.
7. Apply for a pre-approved home loan only when you are ready to purchase a home. Frequent applications raise question marks on your credibility.
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