Most of us are not millionaires or billionaires who can wake up in the morning and just decide to buy something like a house. For a majority of people, investment in property is a huge decision which can have far reaching implications, because it requires a substantial amount of investment and that too for a long period of time. And thus we need home loans. But more trouble waits.
There are so many questions in our minds and so many worries regarding the home loan. A home loan requires some bit of planning on the buyer’s part like setting up a budget, estimation of EMIs that one can comfortable afford and so on. Applying for the loan in the bank is in itself a complex procedure. Banks while sanctioning home loans evaluate the borrower’s finance and also the property documents which may take up a lot of time. But hey, you don’t have to worry over any of this. You know why, When you have Regrob, you hand us all your worries and get solutions in return.
So talking about the clumsy bank procedures while getting a home loan, you might ask if there is any option of splitting up the approval process in such a way that makes it faster and easier for buyers. The answer to this question is ‘Yes’ and it can be accomplished by getting a loan pre-approved before you begin your search for your dream home.
What is Pre-Approval of home loan?
This is a facility offered by banks and financial institutions whereby prospective buyers interested in buying a house can make an application for pre-approval of a loan even before they have decided on any property.
Banks check the hopeful’s credit history, verify the income, and provide a certificate stating that the borrower would in principle be able to avail of a loan up to a certain amount subject to meeting certain terms and conditions. They will require you to submit a lot of information such as income tax returns, bank account statements, income proof, salary slips, identity proof, and Pan details among various other things. Banks will also obtain data from CIBIL to check the credit history of the individual.
Once the checks are in place and the bank pre-approves the loan, it will hand over a letter stating that an in principle approval of a particular home loan amount has been granted and will be valid up to a particular period. Some banks will also state the rate of interest at which the loan will be provided, the reasoning being the interest rate at the time of pre-approving the loan should be applicable.
Often banks offer their existing customers pre-approved loan facility as part of a promotional event. Typically these are offered to customers who may have earlier availed a loan from the bank and maintained a clean credit record. In addition to promotional offers, nowadays banks offer this facility to anyone intending to buy a home irrespective of whether they are customers of the bank or not.
However, you must keep in mind that the pre-approved loan is valid only for a particular period- in most cases it is six months, after which the individual will have to go through the process again.
Although the bank claims to have approved the loan, the interest rates and other important terms and conditions are still at sea, they are ‘indicative’. You won’t know how much you paying back and within what time frame. Some banks do work with a few terms and conditions at the time of pre-approval, but with a “subject to change at discretion of the bank” clause. Besides that, all documents related to loans need to be submitted again at the time of disbursal, without which banks have been known to reject the pre-approved loan. This effectively leads to an additional documentation burden on you.
What is the procedure for getting the pre-approval home loan ?
The borrower makes an application to the bank for a pre-approved home loan. Some banks provide borrowers the option of making this application online too. Convenience at its best, we say. Documentation pertaining to borrower’s income and identity as specified by the bank will have to be submitted at this stage. The applicant may have to furnish information pertaining to his current residence, employment status and salary, marital status etc. These requirements will be conveyed to you by the bank.
Banks would determine the borrowers repayment capacity based on income proof submitted and decide how much they can lend. Since home loans are secured loans, banks will also check the borrower’s credit score with Credit Information Bureau (India)-CIBIL. So make sure you have a good CIBIL score, or else your application might get rejected. Click here to read about How to improve your CIBIL score for home loan.
Once the obligatory verification’s are done and approved, the bank would issue a loan sanction letter. This sanction letter would normally be valid for a specific period of time which will be clearly stated therein. The letter will also state all the other terms and conditions of the pre-approval subject to which the final disbursal will take place.
The interest rate applicable for the home loan would be mentioned in the sanction letter which would be based on home loan rates prevailing at that point of time. This interest rate too will be valid only for a specific period from the date of issue of the sanction letter. Thereafter the rate would change depending upon the type of rate chosen by the borrower (i.e., fixed or floating) and the interest rates prevailing at the time of actual disbursal.
Loan processing fee will be charged by banks for pre-approving a loan. This fee may vary from bank to bank. For example, State Bank of India charges full processing fees at the pre-approval stage itself which is not refundable. This essentially means that this amount would be lost in case the borrower fails to take up the offer within the offer validity period of 4 months or 120 days for which the sanction letter is issued.
To avail of the loan, the borrower should identify a property before the expiry date on the sanction letter. The property documents should be submitted to the bank and if the documents are found to be in order, the loan will be disbursed.
Regrob feels that a pre-approved home loan is less risky and much less clumsy procedure. It requires a bit of intelligent planning and execution. So now that you know how to get your loan pre-approved, you can get, set and go get your dream house. For any assistance and queries, we are right here.
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