The process of buying a home basically involves two steps – first is identifying an ideal property to live in and the second critical step is arranging finance for our dream home. Both of these steps are equally challenging and time consuming. Most of us get so bogged down with the process of finding a suitable apartment that we start the home loan process only once we pay the booking amount. This method mostly proves counter-productive as there is pressure from the seller to expedite the transaction and to make the payments fast. If we are unable to do so, the deal may just be called off. At times, the owners are right as they might be in need of urgent funds and therefore it is best to have a pre-approved home loan before scouting for the property.
Pre-approved home loan is an in principal approval given by banks – private, nationalized, co-operative or scheduled banks, or housing finance firms before the property is finalized. These sanctions can be availed by paying a nominal processing fee, which is generally non-refundable and valid for a period of 3 to 6 months. The documentation process, verification of credit history and the time taken to get the pre-approvals is exactly the same as normal housing loan and hence it is advantageous to have the home loan sanction letter before buying an apartment. Here is the look at the required documents and the important factors that bank take into account before deciding on the home loan eligibility -
List of mandatory documents
- Identity proof – This includes copy of PAN card / Driving License / Passport or Aadhaar card
- Permanent address proof
- Letter from the company confirming the employment
- Last 3 months salary slip
- Form 16 for last 2 years – Most banks do not sanction loan if we have constantly switched jobs and are in probation period in the current job
- Income Tax returns for last 2 to 3 years, varies from bank to bank
- Bank statement for last 6 months
Essential factors that determine the home loan eligibility criteria
- Monthly net income
- Current obligations which includes all our existing equated monthly installments (EMIs) for existing personal, vehicle or credit card loans
- Job stability - employees from MNCs, public sector firms and renowned private companies get added advantage
- Number of dependents in the family
- Area where we stay
- Credit rating which is determined by CIBIL score
Once we get these steps right, we must compare home loan interest rates from different banks and financial institutes before applying for pre-approved home loans. Here are some of the prominent benefits offered by these loans –
Discounts on interest rates
Most banks and financial institutes offer discount on the interest rate of pre-approved home loans. This could be anywhere between 0.1 to 0.5 percent on the prevailing rates.It serves well if we opt for pre-approved housing loans from banks where we have our salary account as most banks have special rates for corporate salary account holders
Helps us to negotiate better
This gives us a better negotiating power as the developer / seller knows that we have the money to buy home and we have come prepared to close the deal. They also know that this sanction is valid for few months and in case the deal is not materialized fast, we may purchase a flat from someone else within the stipulated time. This prompts the property owners to offer good discounts.
Enables us to stand out from crowd
This is the major advantage of pre-approved home loan as it allows us to stand out from crowd. The owners know that we are serious buyers and have not come just for window shopping. They take us more seriously.
Makes the entire process of home buying easy and convenient
Once we have the preapproved housing loan, the real loan disbursement and final processing takes much lesser time and the entire process is accelerated. Plus, we have more time to focus on the property to be purchased rather than running around banks for loans.