Know why pre-approved home loans works best for home buyers

As if selecting the right property wasn’t a task in itself, home buyers also have to spend sleepless nights before being able to arrange the requisite finances for buying the property. Believe it or not, it is precarious as most often buyers end up paying higher EMIs, thus burning a hole in their pockets.

“The most challenging aspect of home ownership is invariably financing. Questions like which lending institution to approach, what loans should be applied for, how much loan to be applied for and how much time will it take for approval need to be answered,” said Anil Pharande, chairman and managing director of Pharande Spaces.

He further added, “The safest move on this front is to become pre-approved for a home loan. Doing so means that this tricky and time-consuming aspect of home purchase has already been dealt with, and that one can enter the market focused squarely on the best options. Getting pre-approved also puts you in the strongest possible place when it comes to negotiating the best deal.”

Understanding pre-approval

According to Pharande, pre-approval for a home loan is a written confirmation extended by the lender to the potential buyer. He explained that before issuing a pre-approval certificate, bank officials conduct a thorough ‘credit worthiness’ check of the applicant.

“This involves collecting all the data related to your past and current debts, repayment history, disposable income, credit card record, etc. and running it through software that will calculate whether you could be a likely candidate for approval,” he noted.

On the other hand, a pre-approval is quite different from pre-qualification for a home loan. In the case of a pre-qualification for a home loan is generally like an ‘educated estimate’ provided by the lender. The lender gives you an estimated idea of the amount it can loan. However, it does not mean you will get a home loan for sure.

Getting the pre-approval certificate

The chances of getting a pre-approved loan become higher when you are able to offer credible references to the lender. “While seeking to become pre-approved, it is always best to approach a lending company that you know or can be referred to by a friend, colleague or family member. The lender needs to have the assurance that you are a credible borrower. However, do not stop searching after you have met the first possible lender,” said Pharande.

Once applied, a loan officer from the lending company visits the applicant and helps them streamline their financial statements which include bank statements, investments, holdings, salary slips, income tax returns and other information related to your finances. Once, the process is over, an applicant is usually offered the pre-approval certificate.

How you stand to benefit?

This tedious process often gives you an approximate idea of the budget you should ideally have for buying a house as well as the maximum loan amount you are eligible for. The biggest benefit being that a home buyer will not get an assured loan from its lender.

However, Pharande throws a word of caution here. He recommended that a home buyer should try to obtain a customized loan approval from its lender. “The letter states that the finances are ready when you choose to ask for them. It is highly advisable to work with lenders who have the ability to provide customized pre-approval letters, inclusive of the maximum purchase price. Sellers could get greedy if they see a greater loan amount than their quote,” he warned.

Besides, a pre-approved home loan also gives you the opportunity to get hold of the best deal as and when available, thus saving you the trouble of worrying about the funds.