Decoded: Home Loan Pre-Approval

A mortgage approval is an extremely important process when you are buying your dream home, considering the fact that most home-buyers do opt for home loans nowadays. But if you have a pre-approval to your home loan, your dream may come true sooner than later.

But what is a pre-approval? As the term suggests, a pre-approval means getting a letter from a bank stating up to how much the bank is willing to lend you. It gives you an idea of the pre-approved limit up to which you can borrow, even before you finalise a house.

This is a written document and is very different from pre-qualification, which is a step behind pre-approval. Pre-qualification is an unofficial number given to you by a bank, based on the information provided by you, and roughly tells you the loan eligibility amount. However, pre-qualification is an unverified number – so the actual amount may vary when you get the sanction letter.

In case of pre-approval, the banks pull out your credit score; verify your bank accounts and salary. So a pre-approval letter means some serious processing in the first place.

3 advantages of pre-approval
· Pre-approval gives you an idea of how much a lender is willing to lend you. This straight away fixes your budget and you can start looking for a home worth that valuation. This also defines your home-hunting process well.

· A pre-approval letter eliminates the time taken to get a loan sanction letter as it is given to a consumer after the verification process. So the minute you like a house and agree to the builder’s terms and conditions, you can immediately pay the token amount.

· It also lets the seller know that you are very serious about home buying. When a seller knows you are serious about buying the house, he usually lets you bargain. Therefore, you may actually end up getting some discounts and freebies.

Rajiv Raj is the Director and Co-Founder of www.creditvidya.com
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