Have you ever had nightmares about your dream property slipping through your fingers while you were running around to arrange for finance? You can now rest assured as pre-approved loans are available which take care of your financing need for buying a property.
Banks usually have tele-callers who convince you of getting these pre-approved loans with reduced home loan interest rates, easy documentation and faster processing. You can expect your loan to be approved within forty eight hours of application.
These loans are essentially an approval in principal given to you by financing institutions/banks based on your borrower’s profile. Certain banks such as ICICI Bank allow you to make an application for such a loan online, in your own sweet time. The factors that banks look into while deciding about your application are payment capacity through income status, history of payback, net worth and EMI outflow. The bank approves then of a particular amount which you can make use of as home loan, within a stipulated period of time, normally six months. Even though it feels great to have an approval letter in your hand prior to finalising that you would want to buy property in India, there are several issues that may crop up which you have to decide about before applying for a loan.
Even though the bank has “approved” the loan, the terms and conditions along with home loan interest rates are not definitive. Borrowers are usually not informed of the time frame for payback and the equated monthly instalment payable. Certain banks work out a couple of terms and conditions when giving the loan a pre-approval, but they attach a “subject to terms and conditions” clause to it. Moreover, the document also states that rules applicable can be changed at the discretion of the bank.
The rates of interest mentioned in the approval letter is mostly indicative and of the floating type. If you want a loan of the fixed interest type then pre-approved loans is not suited for you.
At the time of disbursal, you will have to submit your loan documents again without which the bank may reject the pre-approval loan. Therefore, you need to handle additional paperwork.
A lot of buyers have faced a problem where the amount needed to buy the property and the one provided in the pre-approved loan is not the same. If your final sum is more, you need to make a higher down payment as your chance of negotiating with a bank is limited. This can lead to your budget going haywire.
The costs that are involved in the application of pre-approved loans cannot be refunded. The processing fee levied is irrespective of whether you take out the loan or not. These loans are normally valued for a particular period of time (say 6 months). If the disbursal application is not submitted within that period, then your pre-approval loan becomes null and you will have to apply again, and submit the processing fee with the new application as well.
During the period of the pre-approved loan, your credit amount is blocked. If during this period you need a car or education loan, your repayment capacity shall be calculated taking into account pre-approved loans. Moreover, if you apply for pre-approved loans a number of times, then you may be viewed as someone who seeks credit constantly, which can hamper your credit score.
There are several benefits and pitfalls associated with pre-approved low interest home loans. You should opt for one only if you have shortlisted a property. Pre-approved loans make the purchase process faster and you can negotiate with developers on the grounds of the funds that you have currently with you. This may make the builder reduce the prices for you as they get the chance of trading in ready cash rather than deal with a buyer who has to get a home loan still.
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