A pre-approved loan is a tool that is used by banks, to attract customers to avail of its facility without much stress. Usually, there is a fair amount of uncertainty for house buyers, till the bank admits of a loan amount. A pre-approved loan surpasses such uncertainty and directly offers its customers with a home loan facility. The loan’s sanction is based on the initial check done by the lending bank, to understand the financial capability of the customer and is based on his/her repaying capacity and credit past.

Key steps to get a pre-approved loan

• Preliminary acceptance of the customer to avail of the pre-approved house loan.
• The customer has to show the property details, once the purchase has been confirmed.
• The bank will then confirm the legal and title information of the estate.
• Important conditions, like interest rate, tenure, penalties, etc., are decided.
• The loan is given if all papers are as per the norms

The pre-approval is valid for a restricted period (approximately three to six months), and one would need to complete the purchase before the approval expires.

Pros and Cons of pre-approved loans

The most significant merit of pre-approved home loans is that they let you plan your finances. You get to know precisely how many credits you can avail.

Having a pre-approved home loan also identifies you as a serious buyer in the eyes of the builder or the property’s seller, which can help you to negotiate for a better deal. Unlike standard home loans, during pre-approval, only the financial documents and credit record of the borrower are evaluated. This makes the process much faster.

In contrast, experts point out that if the interest rates decline, during the pre-approval and disbursal, the customer may not be capable of benefiting from the declined rates, as the price of interest has already been agreed on.

In case the customer decides to not avail of the pre-approved home loan or if the validity period has expired, the processing fees paid by him are not refunded as a norm.

This feature applies to all home loans across categories, but a customer can always request, to extend the period of validity if he has finalized the property against which the credit will be taken.

When availing of a pre-approved home loan, essential things to recall

• Opt for pre-approval loan, only after selecting a few main properties.
• Frequent applications can decline the credit score of the customer.
• Make sure you go through the terms and conditions for payment/prepayments very carefully.
• Understand the benefits, such as individual or discounted interest rates and other offers clearly, before applying.
• Ascertain the applicable penalties and charges in advance.

Experts point out that customers can always avail of a pre-approved loan, when they intend to buy a home and warn that one should avoid buying a home just because a financing institution has extended a pre-approved home loan offer.

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