Pre-approved mortgage loans
I am pretty sure you all would have got those repeated calls from tele-callers talking about pre-approved bank products that you can avail. Though the calling times might be wrong, those pre-approved loans give a huge advantage when you are thinking about buying a home through home loans.
What is a pre-approved mortgage loan or home loan?
A pre-approved mortgage loan is where a person looking to buy a home through home loans visits a bank to get complete details of how much a bank is willing to offer him/her as a home loan based on your salary, job, company you work for, years of experience, marital status, credit score etc. The banks give a letter with details of the loan, interest rate, tenure, and EMI. This approval has a period by which time the person has to get a home and use the funds.
What are the advantages of pre-approved mortgage or home loan?
Know Where You Stand
When you apply for a pre-approved loan you get a better idea of your finances, you know exactly how much you can borrow and how much you can match. You will be able to restrict your house search accordingly instead of going for a pricy house and your finances going for a toss and in the end, could bring you to reconsider your decision of buying property.
With a pre-approved loan, you are considered a serious buyer. You have funds at the ready when you choose your home. Also, you can get the discount from sellers as they know you are ready to buy a house and will prioritize you over other buyers.
Since you have already approached the bank for the loan, they would have already done the necessary background checks due to which your loan application will be processed very fast and funds disbursed at the time of payment.
Discount from banks
Banks since pre-approved loans are time bound and that you will take the loan in a short period, the bank will be willing to give you a small discount on the home loan that you take. Though the different is very small it will have an impact and you will save money as the amount taken will be huge and any difference will be welcome.
Cons of pre-approved mortgage
Though getting a pre-approved mortgage is a good thing, there are certain things you need to be careful about.
Pre-approved loans are given by banks with an expiry date. Any person needs to get a home by the time expires. Banks generally give a period of 2-6 months for the loan to be availed. This could be a problem because a person may be pressured to get a home as they have a time frame, due to which they may not do the due diligence they usually do.
Change in interest rate
The interest rate that is mentioned in your approval letter might change at the time of cash disbursal. It may increase or decrease with respect to the market. The actual cash disbursed may also vary after the bank does its own due diligence on the property.
How to overcome these obstacles?
The above-mentioned issues can be overcome by a simple solution. Before applying for a pre-approved mortgage, shortlist say 3 or 4 houses that you are really interested. This way the time-period and even the interest rate will not be an obstacle at the time of disbursal.
Things to watch out for?
Though you have a pre-approved loan there are situations that could make the bank reject your loan outright at the time of final processing of the loan. Those reasons are
1. Job change
As mentioned before the pre-approval of your loan happens based on your salary, experience, company, and stability of the job. If you change your job in between after getting your loan approved, the bank will reject your loan as the parameters have changed. It is best to check with your loan officer about the terms and conditions before moving to a new job.
2. Salary change
If your salary has bonus and incentives which you were expecting to be good and informed the same to the bank, but it came out lesser than what you had expected is a means for your loan to be rejected.
3. Negative issues on your credit report
If you had got any negative issues on your credit report after the loan approval and comes to the attention of the bank at the time of loan processing the loan will be rejected.
4. Applying for more debt
Do not apply for more credit after getting a pre-approved mortgage. For example, if you take a loan for a new LED TV loan it will give the banks a negative impact and may reject your loan application.
Now with so much information about pre-approved mortgage, you may be confused on whether you must go for it. The answer is simple when you put it this way – arranging funds for a home loan is very difficult under short notice. Having a pre-approved mortgage loan can come in very handy at the time of negotiation and payment.
The cons as mentioned can be overcome with proper planning and due diligence on the part of the borrower, making sure they know all the points in fine print and adhere to it.