Sunday, 6 May 2018

What is a Pre-Approved Home Loan? | What does pre-approved home loan mean?

Usually while buying a residential property, we negotiate the price of the property after finalising the property. After this, we approach a bank for a home loan. However, this may not be the best approach. You may be better off if you start the process by getting your home loan pre-approved.

Pre-Approved Home loan and its advantages
Pre-Approved Mortgage

What is a Pre-Approved Home Loan?

Pre-Approved Home Loan (also called as an in-principle approval/sanction of a home loan) is a home loan sanctioned by the bank to its customer/borrower before the borrower has finalized a residential property to buy. The loan amount is decided purely on the basis of borrower's income documents, creditworthiness, repayment capacity and financial position.

The value of the property is not taken into consideration at all (as the same would have not been finalized by the borrower at the time of application for the home loan). The approval is valid for a limited time period (usually 3 to 6 months). The borrower should identify a property within this limited time period. If he is unable to do so, the validity of the sanction letter will lapse and he will be required to submit his latest financial documents.

The disbursement will be done by the bank only if the property has a clear title and is acceptable to the bank as security (as per their lending norms). For example, if the property finalized by the customer is found to be structurally weak, the bank may not go ahead with the disbursement of the loan.

Also one must keep in mind that the terms of the loan (interest rate, EMI, and tenure) indicated in the sanction letter may change later. For example, if the rate of interest increases after the bank has given an in-principal sanction letter, the borrower will not get the loan at the rate of interest mentioned in the sanction letter (as always rate of interest applicable to the loan is the rate of interest prevailing at the time of disbursement of the loan).

What are the benefits of getting a home loan pre-approved?

1. Once the borrower knows how much loan he is eligible for (based on his income), he will be very clear about his budget. Hence he can focus better on the property search without worrying too much about how he will be able to manage his finances for buying the property. He will not miss out on a good property deal as he will be able to make quick decisions (since he would now have a better picture of his budget and finances).

2. The loan processing will take much less time after the property has been finalized by the borrower (as a lot of loan formalities would have been completed at the time of pre-approval/in-principle sanction of the loan). This will also enable him to make immediate payment to the seller of the property and quickly take possession of the property (if the property is ready).

3. The borrower will be in a position to negotiate better with sellers. The pre-approval of home loan would increase his bargaining power as he would now have a sanction letter to show to the seller (so that the seller becomes confident about swift payment of the price of the property). The seller may agree to sell the property at a slightly lower rate in such a scenario.

4. Assistance in property search - Sometimes the banks also share with the customers (whose loans have been sanctioned in principle) the list of projects approved by them This would assist the borrower to try to find a deal without the assistance of a broker. Also, if he finalizes a property from that list he can be sure that the property falls within the lending norms of the bank and that title of the property is clear.

Read Further -

Factors that affect home loan eligibility

Reasons for rejection of a home loan

Break up of EMI into interest and principle


  1. Informative blog. Mortgage Consultancy one of the high-end calculators which help you in the understanding of how your loan repayment amount is built up and factors affecting it. Visit on singapore home loan calculator

  2. Thanks for sharing such an informative blog that explains the importance of why we need Pre-Approved Home Loan? You can opt for Personal Loan Company USA for more information.

  3. This comment has been removed by the author.

  4. Great job for publishing such a nice article. Your article isn’t only useful but it is additionally really informative. Thank you because you have been willing to share information with us. private mortgage broker in Montreal

  5. Thanks for the blog post buddy! Keep them coming... Finance

  6. I read this article, it is really informative one. Your way of writing and making things clear is very impressive. Thanking you for such an informative article.How To Get A Same Day Payday Loan

  7. I am amazed by the quality and the presentation of the article. Really it is a significant and factual article for us. Continue imparting this sort of info, Thank you. personal loans for fair credit score