Pre-Approved Home Loan Vs Regular Home Loan

Imagine a scenario where you want to buy your dream home on loan. You zero in the house and apply for a loan. For some reason either your loan application gets rejected or else the loan approval takes so long that the property gets sold-off to someone else who had gone in for a pre-approved home loan. That is when you understand the importance of availing a pre-approved home loan.

Secured loans are necessarily a two-level process.

• The first level involves a procedure where your eligibility or borrowing power is examined on parameters such as your income and credit history and on basis of these parameters, the eligible limit of loan and the interest rates which would be applicable to you is set.
• The second level of approval consists of verifying the asset being offered as security. Disbursal happens only after the documents and the property are properly verified.This involves verifying all documents connected with the security, the condition of the actual asset and the alignment of the actual asset with the documents deposited for verification.

Once both these steps are undertaken and completed, the loan is said to be sanctioned and thereafter, disbursement takes place.

What happens in case of a pre-approved loan is that the first level of approval, i.e. checking your personal credibility takes place before you select the property of your choice. There is an expiry date—the terms and conditions are usually valid for six months. The bank hands over the approval letter which says that you are eligible for a certain amount of loan and the letter is valid for six months.In most cases, interest rates levied are also mentioned in the letter but are valid for a short duration of time like 1-3 months after which they can be reset by the bank according to your choice of fixed or floating rates. Note that a pre-approval letter from a lender is not a guarantee from the lender that a loan will be provided.If you do not select the property within the validity timeframe allotted by the bank, you will have to go through the entire process again.

Most banks do charge a processing fee for pre-approval. Some banks refund this processing fee if you actually avail the loan.

You can visit as many lenders as you like and get several pre-approvals, but keep in mind that each one carries with it a new credit check, which will show up on future credit reports.

Although not a final loan commitment, the pre-approval letter can be shown to listing brokers when bidding on a home. It demonstrates your financial strength and shows that you have the ability to go through with a purchase. This information is important to owners since they do not want to accept an offer that is likely to fail because financing cannot be obtained. This is the most important aspect where a pre-approved home loan scores over a regular home loan.

Applying for a loan before shopping for a home could be advantageous to you in the following fashion:

• Save time: Once you start looking for a home that would suit your requirements the most, you would be so engrossed in the same that you would seldom get time to follow-up with the relationship managers and the loan officers to inquire about the status of your home loan, especially if you are working. Pre-approved home loan can save you from going through hassles of doing both things side by side.
• You would be a self-confident buyer. You would not have to undergo the last minute disillusions of loan rejections and thus losing the property of your choice. You would be in a perfect shape to understand how much worth of a property should you look for and then you would be redirected to looking for the kind of home that you would prefer instead of choosing a fantastic home to buy, only to realize later that you are not eligible for the amount of loan you require.
• By having certain amount of funds already to your kitty, you would have a good negotiating power in comparison to someone who is still to cough up the amount. By producing the document of pre-approval to the seller, you give him the confidence that you are in earnest and are interested in buying the property. This in turn may lead the lender to settle down for lower rates than quoted originally because this gives a certain confidence to the seller too.
• The closing of the deal would be much closer than usual because half the ground work is ‘pre-done’. By this time the only work that is to be done is the verification of the property and finding out whether the title and search report is in-tact or not.

At the end of the day, you are out there to buy the home of your choice. If you choose the house first and then go in for a loan, you could end up losing the house of your choice if the loan application gets rejected or else, the loan amount you are eligible for is much lesser than the price of the house. So it is sensible enough going for a pre-approved loan and then, according to the funds you can manage to avail, choose the house that would suit to your requirements.

Following is the list of documents you are required to submit when applying for a pre-approved loan.Some banks may not ask for these documents if you are a customer there already.

Once the pre-approval has been granted to you, you have to select the property of your choice and then hand over the list of following documents to the bank for verification and also the bank will undertake a field verification of the property and then disburse the loan amount to you.

• Original Sale agreement with Builder/Developer duly registered Registration receipt.
• Tripartite agreement from builder/developer
• Land documents indicating ownership, e.g.- Photocopies of title deeds, if applicable
• A certificate by the legal advisor of the builder to the effect that the builder has a good reputation and it is free from encumbrance and other charges.
• A certificate from builder's Chartered Accountant certifying that the builder has not mortgaged the property anywhere else.
• Certified true copy of approved plan by a competent authority, MCD in case of Delhi and BMC in case of Mumbai.
• Copies of receipts of payments made to builder/developer.
• Allotment letter
• Lease agreement, if applicable (Property bought from a development authority)
• Mortgage deed if the Bank opts for a registered mortgage.
• No Objection Certificate from the developer, society or development authority as applicable.
• Personal Guarantees, if applicable.
• For self-construction: Approved plans and clearance certificates along with estimates
• Post-dated cheques for the EMIs.

If you are nearing a scenario where you would be purchasing home in the near future, availing a pre-approved home loan would be a good idea since it would enable you to go through the entire process step by step. On the other hand you should tread cautiously due to the fact that in case you apply with more than one lender, you would be incurring multiple doses of non-refundable processing.