The Role of Loan Pre-Approval in Securing the Best Home Loan Deals

Banks generally offer funds which is up to 80% of the total cost of the property. The final amount is decided based on the documents you have provided, builder repute, location of the property, etc. Extensive borrower profile checks and documentation process are quite common in a normal home loan application process. However, if you have a stellar credit score and are a long-term customer with a bank, you may secure a pre-approved home loan. This could help you fetch better deals on your loan in more than one way.

But first things first - let's understand what is a pre-approved home loan. 

What is Pre-Approved Home Loan?

Before we delve into the benefits, let's understand what loan pre-approval entails. Unlike regular home loan sanctions, home loan pre-approval offer is rolled out before the property deal, meaning you don't have to submit any property-related documents to the lender. 

When does a bank decide to offer pre-approved home loan? The bank would assess your financial details to determine if you qualify for a specific loan amount. This process involves reviewing your income documents, credit score, and other relevant factors. Based on these factors the bank will then issue a pre-approved loan sanction letter. 

In some cases, you may qualify for a pre-approved home loan if you have a long-term banking relationship with the concerned lender.

Generally, a pre-approved home loan comes with a 6-month tenure within which you should finalise the property deal. Else, you may have to re-apply for the pre-approved loan. 

Benefits of Loan Pre-approval 

Securing pre-approved home loan brings several advantages.

1. Identification of Potential Issues Early

   The pre-approval process involves a thorough review of financial documents and credit history, which can reveal any discrepancies or issues early on. Addressing these concerns before making an offer can improve the chances of securing financing later.

    

2. Interest Rate Locking

   Some lenders offer the option to lock in interest rates during the pre-approval process, protecting borrowers from potential rate increases before they finalise their home purchase. 

    

3. Time-Saving

   Since you are pre-approved, the loan application process becomes faster and smoother when you find your dream home. This can help you close the deal quickly and avoid losing out on the property to other potential buyers.

    

4. Increased Confidence

   With loan pre-approval, you gain clarity on your financial capabilities. This knowledge gives you confidence while house hunting and allows you to focus on properties within your budget.

    

5. Better Budgeting

   Loan pre-approval provides insight into your borrowing capacity, enabling you to plan your budget accurately. You can calculate your Equated Monthly Installments (EMIs) in advance and manage these monthly payments without any stress. An online housing loan calculator can help you work out these details quickly.

Example

How Rahul gained from loan pre-approval in securing the best home loan deal

To understand the significance of loan pre-approval, let's consider a real-life scenario:

Rahul a young professional was looking to buy his first home. He approached a bank for loan pre-approval and found out that he is eligible for a loan amount of up to ₹80 lakhs. Armed with this information, Rahul starts hunting for properties within his budget.

During his search, Rahul comes across a beautiful flat priced at ₹75 lakhs. Since Rahul already has the pre-approval in place, he can confidently make an offer to the seller. The seller, knowing that Rahul has already been approved for a loan, is more inclined to negotiate and accept his offer.

The second bit is that the lender was willing to lock interest rates at the current levels. This helped Rahul as the interest rates after the final negotiation had moved up slightly. Apart from this, since there was a pre-approval in place, Rahul witnessed a speedy disbursal of the loan. 

The Significance of Competitive Rates in Loan Pre-approval 

Apart from pre-approved home loan, buyers should also consider competitive rates. 

Here's why matter competitive rates matter. 

1. Lower Interest Payments: A lower interest rate results in reduced interest payments over the life of your loan. This translates into significant savings over time, allowing you to allocate funds towards other financial goals or investments.

    

2. Affordable EMIs: Competitive rates mean lower EMIs, making your monthly repayments more manageable and leaving you with extra funds for other expenses or savings.

    

3. Faster Loan Repayment: When your interest rate is lower, a larger portion of your EMI goes towards the principal amount, enabling faster repayment of the loan.

    

4. Improved Financial Stability: By securing a home loan with competitive rates, you can achieve better financial stability as it reduces the strain on your monthly budget and ensures smoother loan repayment.