When financing a new home comes in question, people often ask about “How to get pre-approved for a Home Loan?" for which they need to search for answers even before they start the property search. For example : how one can afford a big house to buy? What will be the interest charged on a housing loan? What would be the tenor of the home loan? What kind of impact past credit defaults likely to persist on the future borrowing ability?
These questions, when answered, prepares the applicants beforehand you begin your search for a house.
What is Pre-Approved Home Loan?
Pre-approved Home Loan is a facility offered by banks and financial institutions whereby prospective buyers show their interest in buying a house that can make an application for pre-approval of a loan even before they zero in on any property.
Banks examine the applicant's credit history, verify the income, and give you a certificate mentioning that the borrower would be able to obtain a loan up to a specified amount subject to fulfillment of stipulated terms and conditions.
For example : State Bank of India has a pre-approved home loan facility(SBI PAL) offered to both the new customers as well as existing ones. After verification of the financials, the bank examines the pre-approval application and sanctions a loan for the validity period of 4 months. The home buyer can obtain the loan during this period, after submitting the requisite property documents for due diligence check and verification by the bank.
Pre-Approved Home Loan Process
1. An application is made by the borrower to the bank for a pre-approved home loan. Borrowers are provided an option by the banks for making this application online too. Documentation relating to the borrower's income and identity as required by the bank will have to be submitted at this step. The applicant may have to produce the information relating to his existing residence, employment status, salary, and marital status etc.
2. Banks would determine the borrower's repayment capacity based on income proof submitted and ascertain how much they can lend. Since, home loans are secured loans, banks will also inspect the borrower's credit score with Credit Information Bureau.
3. The bank issues a loan sanction letter only after conforming to the norms of verification checks. This sanction letter stands valid for a particular period of time which will be clearly mentioned therein. The letter will also describe all the other terms and conditions of the pre-approval based on which the final disbursal will take place.
4. The applicable interest rate for the home loan would be prescribed in the sanction letter which would be dependent upon the home loan rates pertaining to that point of time. This interest rate too, will be valid only for a distinctive period from the date of issue of the sanction letter. Thereafter the rate would change based on the type of rate selected by the borrower(i.e. fixed or floating) and the interest rates existing at the time of actual disbursal.
5. Banks also charge loan processing fee for pre-approving a loan. This fee may differ from bank to bank. For example : State Bank of India levies full processing fees at the pre-approval stage which is not refundable. This necessarily means that this amount would be forfeited if the borrower fails to accept the offer which has the validity period of 4 months or 120 days for which the sanction letter is issued.
6. For availing the loan, the property should be identified by the borrower before the expiry date on the sanction letter. The property documents should be submitted to the bank and if the property documents are in sequential order, the loan will be disbursed.
To sum up, home buyers should do a few things before applying for a pre-approved loan. In this manner, they will refrain themselves asking the million dollar question How to get pre-approved for a Home Loan !
- The borrowers should figure out a few properties(3-4) that he/she may look for his/her final purchase.
- After narrowing down the search, the borrower must perform some calculations to find out how much funds can be procured from personal sources.
- Finally to meet any shortfall, he/she should apply for a pre-approved loan.
- Once the loan is pre-approved he/she will be in a position to easily take a decision on finalizing the property well within his/her budget and during the tenor of the pre-approved loan.
Also Read : How to get a home loan with a bad credit?