Preapproval Home Loan

Often, banks approach a potential customer with an offer of a pre-approved home loan with certain conditions. Firstly, this reflects that the customer has an ideal credit profile so that a bank can extend their financial assistance. Moreover, if they decide to oblige, the customer has the provision to run through the application process and loan sanction smoothly. Lastly, this is recorded as a part of the customer’s credit history that they have an eligible profile irrespective of whether the customer decides to take the credit.

This piece guides readers about how a pre-approval home loan works and how one can utilise the scheme to their advantage.

What is pre-approval?

A pre-approval is a quotation from a bank to an individual who is considered to have an ideal credit profile. Generally, there are a couple of stages after one is offered a pre-approval loan. Firstly, one can gain a conditional pre-approved loan by filling out an interest form with several terms and conditions applicable to the scheme. It is only towards the end of the process that the candidate is allowed to finalise their deal with unconditional approval.

What is home loan pre-approval?

A Pre-approval home loan is an arrangement where a bank assesses a customer’s creditworthiness and financial situation and, based on that, makes an offer to the customer for a potential home loan. This is an in-principle approval, meaning that the banks have already assessed the customer’s profiles and found them as eligible applicants. Moreover, it does not matter whether or not the customer has a property already selected for purchase. Furthermore, a few lenders also assist with instant application procedures and so on.

Why would I need pre-approval?

When one is interested in purchasing a new home, one of the first things one can consider doing is getting pre-approval for a home loan. This can give the borrower an insight into what loan eligibility will look like. With the estimation, one can further check their affordability and repayment capacity. All one needs to do to get a pre-approval home loan offer is to apply with the lender of choice and provide them with the required documents. With a pre-approved home loan offer, one has the following pointers.

• Property brokers and sellers will see a potential buyer and consider the buyer a serious candidate with a loan-backing.
• Saves time and effort by getting clarity on loan eligibility.
• One will have the upper hand in negotiating rates as there will already be an offer at hand that one can leverage.
• Raises the credit score of a borrower as pre-approval home loans mean one can repay and shows good creditworthiness.

How does the pre-approval process work?

A home loan pre-approval is an uncommitted offer from a lending institution to a borrower based on the customer’s credit score, credit history, and other factors. This significantly reduces the effort to seek a home loan across lenders. This primarily works when a customer approaches a bank and applies for a pre-approved home loan quotation by presenting the following information.

• Income statement from last three months
• Credit score
• Credit history
• Bank balance or account details
• Amount of money the customer is ready to make a down payment of.
• Tax payment details.

Home loan pre-approval can be crucial when standing out as a potential buyer to a real estate broker/seller. With pre-approval, one will have the provision to look like a serious customer. Once the documents are presented, and an application form is filled out, the lender will assess the details and inform the customer about their pre-approval home loan status within a few working days.

Is Pre-Approval Home Loan Always Necessary?

It is always prudent to consider applying for a pre-approved home loan offer for various reasons. Firstly, the customer can gain confidence in the process of a home purchase. This means that they will have the backing of financial aid, and they can leverage the same for fair negotiations. This again deduces one having a competitive advantage in the lender market with a pre-approval home loan.

Does Pre-Approval Assure a Home Loan?

Acquiring a pre-approval home loan is merely a smart step in getting a loan approved. However, it does not translate to a guaranteed home loan offer. Once a pre-approval is procured, there is a grace period where a bank will wait till the customer gives their nod of assent. A lender assesses the documents provided by a customer for a pre-approval loan, after which the lender offers a pre-approval home loan letter. However, this is not a commitment on the part of the lender.

What Happens After a Home Loan Is Pre-Approved?

Pre-approval for home loans assists borrowers with their property search while backed with clarity regarding the budget and financial aid they are eligible for. After the search for a home is completed, the borrower can proceed to explore their home loan options formally. Since there are a few procedural steps before one is granted a full-fledged home loan, the borrower can go ahead with the process as a home loan pre-approval backs them. These steps will include property valuation, insurance, sale deed, stamp duty, etc.

Key Takeaways

Some key takeaways from this guide are as follows.

• Pre-approval home loans are a smart way to get a loan quote in advance, which one can leverage to assess their financial situation for their property hunting process.
• With a pre-approval can use the letter to gain confidence in negotiating with lenders.
• However, pre-approval is not a sure-shot way to procure a home loan. There is no commitment involved.
• One will have an advantage in terms of their credit score irrespective of whether they take the loan.
• It is only sometimes necessary to apply for a pre-approval home loan before considering a home loan, but it can be a good idea.