When we plan to buy property and we don’t have the financial resources to purchase it, we usually opt for a home loan. The question is, how are we so sure the bank will sanction our loan. What if our loan is rejected on certain grounds and the property we had in mind can’t be ours anymore and is sold to someone else? It isn’t the best feeling, right?
Here is where the importance of a Pre-approved loan comes in.
The bank pre-approves the loan after thoroughly evaluating the credit history, income and expenses of the potential borrowers. Based on this evaluation, the lender decides whether the borrower qualifies for the home loan or not and the maximum amount, the borrower is entitled to. It is basically a green signal given by the lender that the borrower can opt for a home loan for a particular amount.
How are loans Pre-approved?
The procedure for availing such a loan is shown below: –
1). At the outset the borrower first has to make an application to the bank for a Pre-approved loan
2). Based on the borrowers income capacity, the bank decides the amount of loan the borrower is entitled too. Additionally banks will also check the CIBIL score of the borrower
3). Once the required verifications are checked by the bank, the bank will issue the loan sanction letter to the borrower. The letter will be valid for a certain period of time that will be clearly mentioned in the letter itself, along with the terms and conditions of the loan
4). The bank charges a small processing fee for Pre-approving a loan
5). The borrower should decide a property before the expiry date on the sanction letter to avail the loan
Benefits of a Pre-approved loan
1). Plan your finances: Once you have received a pre-approval from the bank, you can plan your finances better. You know how much the bank is lending you, so you can look for a property within that range.
2). Discounted rates on Pre-approved Loans: Many times the banks offer discounts on the rate of interest on a loan that is Pre-approved. Another incentive to go for a Pre-approved loan?
3). Faster Processing: When your loan is Pre-approved, it means that the banks have done a thorough background check on your income and credit history. Unless there is a change in your income, you are sure to receive the loan quickly, with the bank only verifying your property documents, thus reducing the processing time.
It’s always better to get your loan Pre-approved. Once your loan is Pre-approved you can save time by narrowing your searches to the properties that fit your loan amount. It also adds a credible amount of certainty, that you are sure to receive a loan if you find a property within the stipulated time.