Pre-Approved Home Loans in India

If you have been looking to buy a home, we’re sure you would have also looked at home loans to finance your home. Each bank has a variety of options to choose from and benefits for you as a borrower, one of the many things you would have come across is, banks offering you pre-approved loans. Here, we help you get an insight as to what pre-approved loans are, and everything else that you need to know about them.

What is a Pre-Approved Loan?

As the term pre approved’s meaning suggests, A pre-approved loan is when a bank (or any lender) has an offer for you, even before you apply for it. In other words, before you start a loan request form, a bank will come to you and offer you an amount that you can avail of as a loan from them.

How Do Banks Pre-Approve Loans?

Before making you an offer, a bank or lender will determine your eligibility for a home loan, based on your current financial standing, credit history, net worth, age and repayment record.

Read Everything You Need to Know About Income Tax Benefits on Home Loans

What is the Need for a Pre-Approved Loan?

One reason why most people lose out on their dream home is that the loan takes too long to clear, and the seller can’t wait. In a pre-approved loan, you don’t have to find the property you want to buy before you can get the loan. Here, they tell you the home loan amount that you’re eligible for and then you can start looking for a home-based on this. This way you plan your budget and requirement better and the process of getting a loan is faster as you are already approved for that amount.

How to Apply for a Pre-Approved Home Loan?

The process of applying for a regular home loan and a pre-approved home loan are the same. The only thing that will be different is that you will have to mention that the “Property is not identified. you have not found a home to purchase yet.

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The documents needed depend on your profession e.g., self-employed, salaried or entrepreneur. If you are a salaried individual, you will need the following documents -

1. ID proof
2. Address proof
3. 3 months’ salary slips (most recent)
4. Form 16 (most recent)
5. 3 years of Income Tax Returns (most recent)
6. 6 Months Bank Statement (most recent)
7. A cheque for the Processing Fee (this is non-refundable)

If you are a non-salaried applicant, then you will need to provide ID and address proof along with-

1. Business address proof
2. 3 years of Income Tax Returns (most recent)
3. Balance Sheet & Profit & Loss A/c for the last 3 years
4. Business License details (or equivalent)
5. TDS Certificate (Form 16A, if applicable)
6. Certificate of qualification (for C.A./ Doctor and other professionals)

What to Keep in Mind While Considering a Pre-Approved Home Loan?

Although the process for a pre-approved loan is simple and easy, there are a few factors you need to keep in mind, such as -

Credit Enquiry

In order to check if you are an ideal candidate for a pre-approved loan, the bank or lenders will perform a credit enquiry. This is done after you apply for a pre-approved home loan, and unfortunately, this will lower your CIBIL score.

Rejection is a Possibility 

Getting a pre-approved loan does not mean that the bank or lender will automatically accept your home loan application. They still have the right and ability to reject your home loan application. This could be because of factors like - low credit score, unsatisfactory credit history, low income and so on.

It is Valid for Authorized Properties Only 

Some banks and lenders authorize only certain projects and only certain builders. If the home you choose does not feature on the list of approved projects, then your pre-approved offer may be rejected.

A few banks and lenders even go as far as to conduct a property evaluation. This is done to make sure that the home you choose meets their standards before sanctioning a home loan.

Validity Time 

If you are wondering about when to get pre-approved for a home loan, you should know that there is a validity period for your pre-approved home loan. This validity period could last from 3 – 6 months, depending on the lender. If you find a home outside of this range, you will have to apply for a pre-approved loan all over again. This will, in turn, lower your CIBIL score again.

The Interest Rate may be Fixed

Although pre-approved home loan interest rates are competitive, you might not benefit when you’re availing the loan if there are further rate cuts. This means that you will have to pay the interest that was mentioned in the pre-approved loan, even if the interest decreases when you make a formal application.

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Read: How Choosing the Right Mortgage Can Help You Plan Your Future with Ease

Terms and Conditions

No matter how tempting the loan might seem, don’t accept it before you go through all the terms and conditions with a fine-tooth comb. Check what the lender’s policy is on pre-payment and other fines as well. There could be a catch, check all the details and make an informed decision. It is also better to talk to more than one vendor and not go with the first one you speak to.

What are the Benefits of a Pre-Approved Loan?

Apart from the basic benefits covered above, each bank or lender will have additional benefits to offer you as a borrower.

For example,

The SBI Pre-Approved Loan (PAL) Offers Borrowers 

• Low-Interest Rates
• Low Processing Fee
• No Hidden Charges
• No Pre-Payment Penalty
• Interest charges on Daily Reducing Balance
• Repayment up to 30 years
• Home Loan Available as Overdraft
• Interest Concession for Women Borrowers

HDFC Pre-Approved Loans Offer 

• Quick processing
• Clarity on loan amount
• Low processing fees
• Concession for Women Borrowers
• Low pre-payment and processing fees

The Impact of RBI Repo Rates on Pre-approved Home Loans

Recently in April 2023 that the RBI voted unanimously to let the repo rate remain at an unchanged 4%. In fact, this has been kept unaffected at this low rate for the 11^th time in a record low, while the reverse repo rate also has been kept at an untouched 3.35%, in order for economic recovery and growth can be accommodated. This however changed in the month of May, when RBI announced a hike of 4% to 4.4%. So how does this impact your home loans and pre-approved home loans? How should you be responding to such a piece of news as a home loan borrower? How will it affect your future mortgage pre-approval?

Well, this hike of around 40 bps or basis points citing the concern of inflation translates to a burden of higher interest rates for home loans. Group Chairman of Anarock Group Anuj Puri had commented that such a hike in rate from RBI indicates the record-low interest rate era, which has been a key reason for high home sales across the nation since the beginning of the COVID-19 pandemic. If you are an existing home loan borrower, therefore, banks have recommended planning for pre-payments of home loans to accommodate for possible inflation. A benefit of pre-planning pre-payments is that once, your loan tenure can be substantially reduced. And two, you can prevent any failure to pay your EMIs by planning for interest rate hikes in the first place, and also secure future loan approvals.

What are the Disadvantages of a Pre-Approved Home Loan?

The common disadvantages are –

1-The interest rate you need to pay is locked, as mentioned above.

2-Even if you don’t get a house, the money that you spend on the processing fee is non-refundable.

3-You might make a hasty decision, when you notice that your pre-approved home loan timeframe is coming to an end, you might settle on a home just so that you don’t waste the application fees.

4-Every pre-approval application will impact your CIBIL score.

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