Busting 5 Common Myths About Pre-Approved Loans
When you venture into the bewildering world of real estate in pursuit of finding a dream home, the impact would surely be overwhelming— it is a world full of unlimited possibilities where anything can happen. In that pursuit, it may so happen that we cease to think realistically. We would certainly like to have the best, but our financial position might not allow us to get that just now. A homebuyer could save himself the trouble of feeling these extreme feelings in case they already know from what kind of money they could spend on a home purchase. They already know about their personal savings, all they now have to do is to get a bank to let them know what kind of home loan they are eligible to get. Towards achieving that goal, pre-approved home loans are the perfect answer.
What are pre-approved loans?
Typically, buyers start looking for a financer once they select the property they mean to purchase. A pre-approval, on the other hand, happens when the buyer has made up his mind to buy a property but they have yet to select one. This buyer would approach the bank, give it every detail required to process the request and get an answer in some time. The bank will assess the prospective borrower’s financial position by analysing his personal information, monthly income, credit score and credit history, work experience, et cetera. Based on this information, the bank would let you know a tentative amount they would be willing to lend you if you were to actually borrow. It would issue a letter, confirming the same.
Now, there are several misconceptions attached to this concept. Let us find out the reality behind it to have a better understanding of pre-approved home loans.
MYTHS VERSUS REALITY
It is a surety that you would get the loan
Financial institutions have to employ a good deal of work to scan all those documents to arrive at a number they will be willing to lend you for the future home purchase. Naturally, they would certainly do all in their capacity to turn you into a customer from a prospective customer. However, they have their limitations.
The entire calculation would change as the intended property comes into the picture.
Upon technical analysis, the bank might find that there is a mismatch between the asking price and real value of the property. A financial institution, for instance, would not lend Rs 50 lakh for a property whose market value is perceived to be similar. It would expect the buyer to arrange at least 10 per cent of this value from his own savings and get the remaining amount financed even if the borrower received a pre-approval for a Rs 50-lakh loan.
You have to take the loan once it is pre-approved
There are no have tos here, from the perspective of the borrower as well as the lender. If you are not able to find a property with the timeline that is set by the bank, the validity of the approval will expire. Similarly, if there is a change in your financial position, the bank might drop the offer.
Being pre-qualified is similar loan being pre-approved
Don’t be mistaken if these two terms are used interchangeably; they certainly are not one and the same thing. A bank would grant you the position of being pre-qualified for a home loan after examining some specific details about you. This is more of a verbal and informal commitment. A pre-approval takes place when you formally apply with for a home loan and the banks put in due diligence to process your request. In this case, the commitment is more formal and documented, too. For home loan pre-qualification, a prospective borrower may or may not be asked for a processing fee. In case of pre-approved loans, they have to pay a fee.
There is no penalty for not availing of a pre-approved loan
Sure, there is a penalty. The bank would forfeit the processing fee in case you are not able to grab the offer that is extended for a limited period. Also, every attempt to get a loan gets registered in your credit report. Making several such attempts and not availing of them would reflect poorly in your credit report. Banks would judge you adversely for that when you have to do serious business with them in future.
You can stretch the time limit
In case you are not able to grab them within that time period, they cease to exist. This period may range between three and six months. After this period, the bank would forfeit the amount you have submitted as the processing fee and the offer would no more be valid.
Only in specific cases, the bank might extend the time limit if the borrower keeps it in the loop and gives a genuine reason for the delay.