2 min read
25 May 2021

Owning a house that one can call a home is every individual’s wish. Besides every other consideration, this need warrants sufficient funds at your disposal. But if you don’t end up meeting the pre-requisite cash supply, you can also apply for a home loan from a reputed bank or other financial institutions.

However, an extensive loan disbursal process or a probable delay in the loan application process can put all your plans on the back-burner, considering both demand and price of real estate are on a perennial upswing. But again, this is exactly where a pre-approved home loan plays a role, bringing closer both the ends of the spectrum – your home and the required funds to make it possible.

Check out why and how you can get a pre-approved home loan

What is a pre-approved home loan?

Essentially a sanction by the lender, pre-approval is the process whereby a bank determines a borrower’s eligibility for a home loan, based on the individual’s financial standing, credit history, net worth, age and repayment record. Such a loan has its own advantages such as a relatively low-interest rate, easy documentation and quick processing.

Unlike a home loan, this does not involve scrutinizing the technical and legal aspects of the property you wish to buy. After having probed all the parameters and variables at play, the bank will assess whether you are eligible and accordingly license a loan, attach a specific rate of interest, payable over a definite period of time.

The borrower can avail the pre-approved loan, only after submitting all relevant property-related documents the bank needs for subsequent due diligence. However, a pre-approval doesn’t add up to a guarantee by the lender. It is only an eligibility check and the lender retains the final right to approve the loan once you have shortlisted the property and collated important paperwork. Generally, the pre-approval stands valid for about three months; however, it is up to the specific lender’s discretion.

Additional Read: Get your home loan approved instantly

Important features of a pre-approved home loan

  • It is not tantamount to a guaranteed home loan sanction, which ultimately depends on complete verification of all relevant documents, among others
  • These usually carry a lower interest rate but other processing charges may be attached; such fees are non-refundable
  • It stands valid for a definite time frame
  • Borrower’s credit limit gets affected to the tune of the pre-approved amount; meaning your ability to repay a personal or an education loan (if you apply for these in the meantime) will be determined on the basis of the loan you want to pre-approve
  • Most lenders will allow a concession on the interest rate levied on a pre-approved loan
  • Processing is relatively faster, considering the bank already has most of the relevant papers

Why should you opt for a pre-approved home loan?

  • A pre-approval letter might be the key to your home, figuratively and literally speaking. The fact is that the housing market is a tremendously competitive one that rolls along at breakneck speed. The seller might want to see a pre-approved letter from the lender, a document that endorses your seriousness and dedication towards the property and also establishes you as a valid and able potential purchaser
  • You will have been well-acquainted with the process of availing a home loan by the time the opportunity materializes.
  • You will be able to plan your budget depending on the sanctioned pre-approved amount
  • Processing and finally approving the home loan amount will be a faster process once you have it pre-approved

Additional Read: A complete guide to applying for a home loan

How will you get a pre-approved home loan?

Before getting to how can you pre-approve a home loan, you should iron out the creases in your credit score and credit report. This will help you with an estimate of the kind and value of the loan as well as the interest rate you would be tentatively up for.

Now if you have crossed the initial frontier, it is time to get down to other details:

  • Present all information related to your income

You have to supply income-related information to the lender prior to getting the loan pre-approved. This could include details of paychecks and bank statements over the last six months, salary slip, Form 16 (TDS certificate), IT returns (usually pertaining to the past three years) and other auxiliaries such as balance sheet, profit and loss records, etc.

  • Furnish personal information

A valid identity proof and a document validating the existence of your business (for self-employed individuals or entrepreneurs) are other information you will have to furnish prior to the pre-approval process.

The rest of the process, which could take anywhere from a day to a month, is executed by an underwriter. Remember that securing a pre-approval doesn’t really bring you within striking distance of the home loan. You will have to submit all relevant documents once you have selected the house you want to buy, within the pre-determined time frame as mentioned in the sanction letter.

Things you should keep in mind while applying for a pre-approved home loan

1. You will be subject to a credit enquiry

Lenders will perform credit enquiry after you apply for a pre-approved home loan. This check will lower your CIBIL score.

2. Lenders may reject your application

Financial institutions have every right to reject your home loan application even if you are eligible for pre-approved offers. There can be several factors like low credit score, unsatisfactory credit history, low income, etc. that can lead to the rejection of your application.

3. The pre-approved offer is only valid for authorised properties

Your pre-approved offer may be rejected if the property you are purchasing is not authorised by the lender. Some financial institutions conduct a property evaluation to ensure the property meets its qualifying standards before sanctioning a home loan.

4. The pre-approved offer will expire

Pre-approved loan offers are usually for a limited period. The time can range between 3 to 6 months. You have to apply for pre-approved offers again if it expires.

5. The interest rate may be the one at the time of pre-approval

The lender may offer an interest rate that was fixed when your loan was pre-approved. You may not be able to avail a lower interest rate if it decreases when you make a formal application.

Bajaj Finserv’s pre-approved offers on home loans and other loans including personal loans make it easy to avail finance. You can also check your pre-approved offer by sharing a few basic details.

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