What Is a Pre-Approved Home Loan? Pros & Cons - Kotak Bank
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Most homebuyers would shortlist suitable properties and then approach a lender for a home loan. But have you ever considered a pre-approved home loan? Until the lender approves your loan, there’s bound to be some uncertainty. A pre-approved home loan bypasses the unpredictability and directly offers you the loan facility. Keep reading to learn what a pre-approved loan is and the pros and cons of availing one.

What Is a Pre-Approved Home Loan?

A pre-approved home loan is a facility that lenders offer to potential borrowers even before selecting a   property. Most home loans come with the uncertainty of approval as it depends on various factors such as applicant’s credit score, repayment ability, property valuation, etc. But pre-approved home loans directly present the borrowers with the loan facility that can be disbursed within a short time frame. Such a home loan is sanctioned after reviewing the applicant’s financial eligibility and position. However, the disbursal only takes place at a later stage after the property is finalised. With us, you can get in principle approval of your home loan via a paperless process just by using your income tax credentials.

Pros of Pre-Approved Home Loans

Here are some key benefits of opting for a pre-approved home loan in India:

  • Promotes financial planning

Choosing pre-approved home loans helps you plan your finances well in advance. This is because you become aware of your borrowing capacity and thus, look for properties within this range. If you were to go for a standard home loan, you could end up wasting a lot of time looking for houses that don’t match your eligibility.

  • Offers more negotiating power

As you already have a pre-approved home loan, sellers and builders shall consider you to be a genuine buyer. Thus, it gives you an upper hand and enables you to negotiate for a more lucrative deal.

  • Quicker loan processing

As the lender has already evaluated your home loan eligibility, they only need to verify and inspect the property being purchased. When compared to a standard home loan, the processing for pre-approved loan is much faster.

Cons of Pre-Approved Home Loans

Checkout the drawbacks of getting a pre-approved home loan:

  • Non-refundable processing fees -H3

In case you drop the plan of purchasing a home or the validity of the loan expires, then you lose the processing fee. Usually, this amount isn’t refundable and thus, you must keep this in mind while opting for a pre-approved loan.

  • Pre-decided interest rates -H3

Your home loan will be disbursed based on the interest rate locked in during the loan approval. Even if the interest falls between the approval and disbursal, you cannot benefit from the reduced rates for your home loan. This can be a drawback for some borrowers as even a slight change in rates can affect the repayment sum.

  • Pressure of pre-approved loan -H3

Opting for a home loan is a long term commitment that you need to think through. As you need to get pre-approved loan disbursed within six months from the date of approval, it can create an unintended pressure to purchase a home. If the loan validity expires, then you have to pay the processing fees once again for renewal.

You need to keep in mind both the pros and cons of a pre-approved loan before you opt for one. It is prudent to apply for the loan only if you are certain about purchasing a home within the next six months. So, if you are certain, don’t wait. Apply for a pre-approved home loan from Kotak Mahindra Bank today!

Read Also: What is EBLR and Its Impact on Loan EMIs?

Who is Eligible for the Pre-Approved Home Loan?

To qualify for a pre approved home loan, lenders typically look for customers with a good credit history, a clean record of repaying debts, and a stable source of income. However, some banks may also consider new customers who meet specific criteria. Additionally, customers with no credit history and repayment record may still be eligible for home loan pre approval if they have substantial savings in their account.

If you are interested in applying for a pre sanction home loan, you can check with your bank to see if you are eligible. You can do this by logging into your net banking account or contacting your branch office. You should check all the parameters of what is pre approved home loan before applying.

How to Get Pre Approved Home Loan?

If you want a pre-approved home loan, you can apply by visiting the bank branch or using their net banking facility. Eligibility for pre-approved home loans is open to resident Indians aged 18 to 70 years old. The interest rates for pre-approved home loans are typically the same as those for regular home loans.

To apply for a pre-approved home loan, you'll need to submit certain documents. These include proof of identity and residence, your employer's identity card, bank account statements for the last six months, loan account statements for the previous 12 months, salary slips for the last three months, and IT returns or Form 16 for the previous two years.

Factors to be Considered While Applying for Pre Approved Home Loan

  • Pre-qualified loans estimate the amount you can borrow, while pre-approved loans require credit score and document verification. Pre-approval is valid for 90 days and is finalised after applying for a specific property.
  • Income proof required for pre-approved loans includes bank statements, tax returns, and details of other income sources and running loans.
  • Savings are essential as banks only offer up to 80-90% of the property amount. Showcase your savings and investments as proof and deposit gift letters from family and friends if applicable.
  • Banks prefer good credit history and scores for higher loan amounts. Avoid defaulting or making delayed payments on loans or credit card bills to maintain a good credit history.

Pre Approved Home Loans FAQ's

What is pre-approved house loan?

When you receive a pre-approved home loan, the bank or lender has provided you with initial approval based on your financial position, creditworthiness, and income. Typically, pre-approved loans are applied for before selecting a property.

Is it good to get a pre-approved home loan?

When you have a pre-approved loan offer, you have an advantage in negotiating with property sellers or developers. They see you as a serious buyer and may offer you special treatment and discounts to close the deal.   

Does pre Approval guarantee a home loan in India?

While getting a home loan pre approval process is a positive step towards securing a loan, it is essential to remember that it does not guarantee loan approval.

Can a loan be declined after pre-approval?

Although having a good credit score is essential, it is not the only factor determining a pre-approved house loan. Factors such as debt-to-income ratio, employment history, and the property's appraisal value can also influence the final decision.

How long does pre-approval for a home loan last?

A pre-approved loan offer has a limited validity period, typically up to three months. It would help if you finalised whether you want to get pre approved for a home loan within this time frame.

Can I get pre-approved for a home loan before finding a property?

A pre-approved home loan is a conditional approval for a loan that is granted based on your income, creditworthiness, and financial standing. If you don’t know how to get pre approved for a home loan, Usually, pre-approved loans are obtained before selecting a property.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.