What are pre-approved loans and why you might need them

Getting your finances in order before taking the real estate plunge is something all of us dread. We know that a fair chunk of our lives’ savings are going to be pumped into that one property which is going to be our home for the foreseeable future and in some cases maybe even for generations to come.  Since this is quite literally a life changing decision and there are a lot of stakes involved its best to sort your finances out before going out into the market and looking out for your dream home.

This is where pre-approved loans come into the picture to give you a really big helping hand. Pre-approved loans are nothing but in-principal approvals received from the banks after they check your financial track record. The banks will factor in things such as your net-worth, your income, your ability to pay the Equated Monthly Installment (EMI), if you have any ongoing EMIs, your credit history etc before sanctioning the pre-approved loan. This loan comes with an expiration date and in most cases it is six months. Pre-approved loans are usually divided into two types — unsecured and secured. While unsecured pre-approved loans are for personal loans, the latter could be used as car and home loans.

A pre-approved home loan gives a property seeker an exact idea about his financial capacity. Rather than looking for endless properties one can do a focused search once he knows the exact budget he can afford with the help of a pre-approved home loan and his savings.

There are several drawbacks to going through the traditional home loan route when you purchase a property. The biggest problem is the processing time. Pre-approved home loans are processed much more quickly than the non pre-approved variety. There is a processing fee involved which may not be returned to you in case you don’t avail it before its use by date. You can avoid heartbreak with pre-approved home loans in a scenario where you have zeroed in on a property but have to wait for the loan to be sanctioned. In some cases the seller might not want to wait out the loan sanctioning period and could sell it to someone who can beat you to the punch as far as money is concerned.  There is also the possibility that the bank might reject your loan application which just spells bad news for you and your family property wise.

There is also great negotiating power that comes with having a pre-approved loan. When you are dealing with a developer or a seller nothing speaks volumes for your intent to purchase a property than having money readily available with you. Pre-approved loans give you that power over the developer. In some cases they could also be better than the loans offered by the developers.

One thing to keep in mind with pre-approved loans is that the ultimate decision for releasing the loan amount rests with the bank. The property you have chosen might not meet the criteria set by the bank for approval. In this case the bank might actually not give the final seal of approval.

Source:IndiaProperty