1. Home loans: Here’s how you can get a head start; 4 power points

Home loans: Here’s how you can get a head start; 4 power points

BUYING a home is a crucial decision for an individual and generating resources can be a daunting task. One option available to those aspiring to buy a property is a pre-approved home loan.

New Delhi | Updated: January 30, 2017 2:34 PM
Pre-approved loans are offered by banks to existing customers with a clean credit record or a salary account that maintains a decent balance. Pre-approved loans are offered by banks to existing customers with a clean credit record or a salary account that maintains a decent balance.

BUYING a home is a crucial decision for an individual and generating resources can be a daunting task. One option available to those aspiring to buy a property is a pre-approved home loan. It can be considered even before identifying the property that one seeks to purchase. But, are pre-approved loans a good option? It has both merits and demerits.

Loans to existing customers

Pre-approved loans are offered by banks to existing customers with a clean credit record or a salary account that maintains a decent balance. It is a cross-selling opportunity for banks, since they already have a client, they encourage him to avail of more services. They pre-assess an individual’s ability to repay and then extend a time-bound loan. Several banks now offer this facility to anyone intending to buy a home, even if they are not existing customers. Home loans classify as secure loans, which are subject to the borrower accepting the offer and fulfilling certain criteria.

Factors for disbursal

A pre-approved offer is, in no way, a guarantee for receiving the loan amount. Disbursal depends on a number of factors, including zeroing in on a home. The bank pre-assesses the potential borrower’s eligibility based on his financial track record. Credit bureau records are taken into consideration, but only after the client shows interest in taking the loan. For a secured loan, such as a home loan, banks also do an asset quality check. Additionally, deterioration in financial conditions can also obstruct disbursal.

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Negotiate interest rate

Whether one approaches a bank for the loan, or is approached, makes little difference in terms of rules and conditions. You may be offered an attractive interest rate, but it is advisable to check elsewhere for better rates. Being offered a pre-approved loan also allows you to leverage the same while negotiating with other banks, since the offer is an indication of your repayment ability and that makes you a potential customer for any bank.

In terms of streamlining financial planning, in-principle approvals enable focused property searches. Once you are aware of the amount a bank is willing to lend to you, you have a much better idea of the kind of property that falls within your purchasing range. Customers who have been offered a loan also enjoy greater negotiating power with builders as the latter now knows they can fund the purchase. However, if you cannot find a suitable home within the sanctioned period, you will lose the processing fee for the loan.

Shorter processing time

Pre-approved loan has shorter processing time. If one is already a customer with the bank that is offering the loan, processing is simpler since the bank already has statements, PAN number, proof of residence and KYC details.

The merits of accepting a pre-approved loan before identifying a property depend upon the individual’s situation. Signing on the dotted line without taking all the necessary factors into consideration is a folly. Disbursal is not guaranteed and the validity period may compel faster decisions, but an informed choice allows you to plan your finances better, avail a faster processing system as well as discounted interest rates, gain an edge over other customers and embark upon a focused property search.

HOMING IN

Customers with a clean credit record or a salary account can get pre-approved loan
Pre-approved loan ensures greater negotiating power with builders
It requires shorter processing time
Disbursal is not guaranteed and validity period may compel faster decisions
Processing fee is lost if  you are unable to find a suitable  home within the sanctioned period

The writer, Manavjeet Singh is CEO & founder of Rubique

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