Pre Approved Home Loan: Clear All Your Doubts First!

Last Updated : April 5, 2016, 12:06 p.m.

Please complete few formalities to our nearest branch and you can avail a loan of up to Rs. 30 lakhs. How true is this statement? Do you really believe in such kind of marketing tricks, when banks/financial firms send you a mail regarding pre-approved home loan? Do you really think that after getting a pre-approved loan letter from bank you just need to complete minimum documentation to avail a home loan?

Banks and financial firms use various marketing tricks to lure the customers to avail their products. Banks offer home loan, car loan, personal loan, loan against property, gold loan, insurance and other banking solutions to customers. From time-to-time, they send various mails, messages and call customers with regards to their different products and offers. Pre-approved home loan is also among one of these. This is a kind of offer that will help you avail a loan of upto a certain limit. Here, we are discussing various key points related to pre-approved home loan, which would play a vital role to know the concept in a better way.

What is a pre approved home loan?

A pre approved home loan is a kind of pre-approval offered by any bank, financial firm or housing finance companies to grant a home loan to the customers. This offer is made on the basis of individual's credit score and credit worthiness. If the borrower fulfills the basic eligibility and requirements of a home loan, then the approval is provided for a specific amount. The amount is based upon the credit profile and relationship history with the lender. This pre-approved loan letter is valid for maximum six month. This duration may vary from bank-to-bank, some banks offer a pre-approval letter for three months only.

Application process for a pre-approved home loan

The application process of this pre-approved home loan is more or less similar to home loan in general.

In order to avail this type of loan, you must mention that the property if not identified yet . However, the rest of the process and information are same as home loan. You need to submit some basic and important documents to complete the application process of pre-approved home loan. Here is the list of documents required by all the banks to avail pre-approved home loan.

• Address proof
• Identity proof
• Pan card
• Last 3-6 months salary slip
• Bank statement of last 3-6 months
• Form 16 of  lasttwo years
• Last three years income tax return document
• Cheque for processing fee

Home loan myths

Guarantee for home loan: Most of the customers believe that pre-approved home-loan is a kind of guarantee of getting a home loan of specific amount. But this is not true because when bank offers you pre-approved home-loan they just check your credit worthiness,  regardless of whether you are able to repay the loan amount or not. But when you actually apply for a home loan after identifying the property, the bank rates your application on your credit worthiness as well as your property value, risk linked with property, any legal issues or any other drawbacks related to location and disputes. The main concern of the bank while lending the money is checking the repayment capacity. If it finds that the property is not that worthy, it will offer you a lower amount of loan. Therefore, you should not feel fully assured about the amount on the basis of pre-approved loan.

Processing fee is refundable: Generally, customers think that if they are not borrowing the loan from the bank they will get their processing fee back from the bank. But, this is totally a myth. Processing fee is a kind of charge deducted by the banks for processing the loan application and completing necessary formalities. It is a kind of administrative cost linked to the application process. Therefore, it is a non-refundable fee.

100% of the amount can be claimed as home loan: This is another big misconception of people related to home loan application. Often customers are under the impression that they can avail 100% finance of their property value.As per the RBI's guidelines, the bank can offer maximum 90% of amount as home loan against property value. But, this amount is offered if your application falls under the top list, you meet all the criteria of application, your property falls under good category as well as you don't have any negative credit record. Therefore, in most of the cases, customers receive upto 70-75% of amount as loan from the bank.The sanctioned loan amount does not include value of registration fee, stamp duty and other charges. So, all these legal fees and charges will be borne by the customer only. It is advisable that if you are planning to borrow a loan from any bank to purchase a property, arrange some funds of upto 20-30% in advance to manage such expenses and other extended costs linked to the purchase of property.

Benefits of pre approved home loan

Know your budget in advance: This is one of the biggest advantage with pre approved home loan as you know your budget in advance. You know the upper cap of loan amount and you can plan your budget accordingly. It will help in making a proper strategy and plan well in advance about the required amount. You can calculate your savings, other funds flow, pre-approved loan amount and decide a property accordingly.

Always be prepared for risk: You should always be ready to face any drawback when you finally apply for a home loan. There is a level of risk linked with your home loan, which you should always keep in mind. For instance, if you have finalised a property of Rs. 50 lakhs and you have a pre-approved offer of Rs. 40 lakhs, be ready to receive the same or a lower amount on pre-approved letter. If the bank will offer you Rs. 30 lakhs for your home loan, in such situation you are badly trapped in a financial crunch of Rs. 10 lakhs. Therefore, don't solely depend upon the home loan amount, always be ready with some extra amount to support a lower sanctioned amount.

You can negotiate well: If you have a pre-approved home loan, you know your limits well and the approved amount. Therefore, you can negotiate well with the builder or the property dealer while finalising the home. It shows that you are a serious buyer and you are really interested in buying the property. Secondly, deal can be closed within 2-3 weeks if you are really focused. Many sellers prefer those customers who will close the deal fast. Some property dealers and builders also offer special discounts and rebate if they close the deal soon.