Home Loan Pre-approval : Features and Benefits

If you’re buying a new property, the first thing you will have to worry about once you have found your dream home is arranging the funds. However, rather than arranging for the loan after selecting the property, you can do it before as well; through a pre-approved home loan .

It is an in-principle approval of a home loan that is granted by the bank before a property is finalised. The loan amount depends on your credit score and financial capacity, which is ascertained by taking into consideration various factors such as income, age, payback history, liabilities etc.

• Floating Rate of Interest: This indicates that the rate of interest for this type of loan is variable (i.e. not fixed) over the tenure of repayment.
• Validity Period: This type of loan is valid for a stipulated period of time. If a property is not finalised and approved within this period, the loan will lose its validity, and you will have to get it reappraised. You will also have to repay the processing fees.
• Terms and Conditions: Details of the EMI, disbursement pattern, interest rates etc. might change when the property is finalised. This is an in-principle loan, and hence the terms of the loan are not guaranteed.
• Blocks Credit: After taking this type of loan, your credit is blocked, i.e. you cannot take more loans.

• Focus on Property Search: As your loan amount is already decided, you don't have to look at properties that exceed your budget. This helps you finalise on an option quicker.
• Lower Interest Rates: These types of loan have a lower interest rate as the amount sanctioned is decided by your creditworthiness that is estimated when you apply.
• Negotiation: This loan skews the negotiation of the price of the property in your favour. As your loan amount is already sanctioned, the seller knows that you are committed to buying.
• Smooth Processing Procedures: Considering that your finances have already been examined and the loan has been approved, the documentation and processing fees prove to be much less of a burden at the time of the purchase.

Before finalizing on the offer, make sure to have shortlisted a few properties and that all the terms and conditions of the loan are best suited to your needs. Look for a longer validity period which will allow you to consider more options before finalizing your choice. Make sure you negotiate the processing fees and minimum interest rates as well.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.