Be cautious before you Zero Down on Pre-Approved Home Loan

Once you have found your dream property the next big tension is to source for the funds to make the payment. Just to ease out the process and decrease out the formalities and clearances lots of banks and financial institutions comes out with lots of lucrative offers to attract the people. One such option for getting the funds is a pre-approved home loan. Where the pre-approved home loan looks quite attractive to the customer as processing time involved is very less and also comes up with low interest rates compared to other loan options. But let’s understand how the pre-approved home loans function and are this option really worth going for:
 
Pre-approved home loan v/s normal home loan
The pre-approved home loan is a type of loan where the evaluation of potential borrower is done by the lender and the calculations made determines the amount that the borrower qualifies as well as the lender is willing to lend. So when the property is in the under construction stage the developers gets the diligence done from the lender in advance. This process is known as pre-approval of the project. The benefits associated with pre-approval of projects are first and the foremost being the lender does all the required due diligence on the title of the land. So the approval gets easy as one part of the verification process has already been done. Also, the lender does not need to do due diligence all the time any borrower comes for the fund. So when borrower avails for the loan, data for such approved project is already available at all the branches. Hence,  such pre-approved home loans reduce the processing time and help to get the loan at a better rate of interest.
 
While normal home loan has to go through two different processes where the first step is scrutinizing the home loan documents submitted by the customer to find out whether the customer is eligible for the loan and if he is eligible for the loan than the amount of loan to be sanctioned to the ratio of loan amount applied for. In the second step, the bank does the due diligence on the title of the property for which the home loan has been sanctioned and to create legal ownership of the property so that it is competent enough for the seller to sell it. So normal home loan sanctioning is a bit of tedious process and also offers loan at a bit high percentage compared to the pre-approved home loan.
 
Do not solely rely on the due diligence done by the lender
At times buyers, when opting for pre-approved home loan are in an impression that due diligence has been already done by the lender and they will get a clear title to the property. However, it is advised not to take such risk as incase if the title is found to be fraudulent or false it’s the buyer who will have to repent for it. Though the title may be defective but the buyer cannot raise hands from paying the loan irrespective of the fact that property is into litigation. Under such cases, the buyer will be temporarily deprived of the title and will have to continue paying the loan instalments.
 
Pros of pre-approved home loan

The processing period of the pre-approved home loan is really quick as compared to normal home loan. Bank only tends to check the financial documents and not the property papers so the realisation of the loan amount is quick enough.

It helps in easy research for the house as you have the rough idea of the finances.

As you may have the finances ready it gives you the power to negotiate with the developer which may not be the same with other buyers.

Pre-approved home loans come with certain discounts and benefits on interest rates though the amount of discount may be less but it matters a lot at the end.
 
Cons of pre-approved home loan

There is no surety that you will get the loan. If the bank meet with all the terms and property is identified within the given period of time then the only loan will be sanctioned.

Since the pre-approved home loan needs to be taken within the validity period it compels borrower to make a quick decision though he may not be willing to do so.

The interest rate keeps fluctuating during the tenure so banks take your repaying capacity into consideration as a change in the interest rates also brings change in the loan amount.
 
You are almost about to invest a huge amount of your lifetime savings so it’s necessary that you do the due necessary research and solely do not trust the diligence done by the banks or financial institution. In process of saving few thousands, you may end up inviting trouble for yourself as lenders will not get affected it will be you who will have to take the rounds of court.