Pre-approved home loan – Should you prefer this option?

Pre-approved home loan – Should you prefer this optionPre-approved home loan – Should you prefer this option?

If you are planning to buy a property, you would focus on budget and financing of the house property. While you would fix your budget for buying a property, but you might also struggle to get home loans at a later point of time. Here comes, the pre-approved home loans. While there are several benefits for pre-approved home loans, there are a few drawbacks too. In this article I would detail about Pre-approved housing loans, benefits, drawbacks and who should opt for it.

What are Pre-approved Home Loan?

Pre-approved home loan is an in principle sanction of loan given by a bank or financial institution to an individual for a specific amount which is valid for a specific period. The amount arrived for home loan eligibility is done by the bank with its robust process. You need to submit income tax returns, pay slips, bank statements, ID proof, PAN card details etc. to the bank where you are applying for such loans. Banks would analyze all these documents. They would also consider CIBIL report for credit score rating. Once the process is completed and if you are eligible for home loan, they would sanction a pre-approved housing loan letter which indicates the home loan amount and the period of validity. This period is generally valid for 6 months or any other period indicated in the letter. If the home loan is not availed within this period, it would lapse and you need to re-apply for the same.

Also read: How to get online Cibil credit rating report?

Does this mean that Banks have an obligation to provide the home loan?

No. Banks have given in principle sanction of home loan. The actual verification would be based on property documents verification which would happen once you choose the property and submit necessary documents.

Benefits of Pre-approved Home Loan

  1. Concentrate on home search: When you have pre-approved home loan, you don’t worry about finance part. You would focus on searching your dream home which suits your need.
  2. High negotiation power: If you have pre-approved housing loan, buyers or real estate agents would realize that you are serious buyer and you can have good negotiation power in bargaining the price for your house property.
  3. Less hassle and quick loans: Once you select the property, you can quickly submit property documents to bank and they can close property verification. This process would be less hassle as some part of the home loan process is already completed earlier.

Drawbacks for pre-approved home loan

  1. Gap between loan required Vs loan sanctioned: Once you choose a property, the home loan requirement might be higher compared to loan sanctioned. You cannot go back to bank and request for higher loan. Thought some banks would consider this request with additional documentation and if you can prove that you have additional income. But again the process would be tedious and would take more time.
  2. Cost of pre-approved home loan: Majority of the banks  would charge processing fee for pre-approved home loan.  Later they would reduce this amount from actual home loan processing fees when you select property. In case you are not able to select the property within the validity period of sanction letter, you would incur loss.
  3. Zero focus on alternative home loans:  Once you have a sanction letter in hand, you would not look for alternative home loans where they offer for lower interest rates. However while doing your due delegation before applying for such loans, if you can take care of this point, it would be beneficial.
  4. Zero focus on looking for less cost properties: Once you have pre-approved sanction letter in hand, you would just shop around with the sanctioned amount forgetting that you can still look for less cost properties. This is the mindset of the individuals.

Also read: Best Home loans rates in India

Conclusion: While there are a few drawbacks, if you are seriously looking to buy a property and want to be less hassle, you should go for Pre-approved home loan. Ensure you are aware of the drawbacks before approaching banks for pre-approved home loan.

Readers, what are your experiences in pre-approved home loan? Do you think that this would benefit property buyers?

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Pre-approved home loan – Benefits and drawbacks


  • Mohit

    I don't think that pre-approved loan is a good idea because once you decide to purchase a property & book an initial amount, the loan process would be an easier one, if one pose good credit score. Again, the private bank agents will process everything in an ease; they are actual searching for such sort of people; just because of competition, SBI guys are also searching for such sort of people. One's loan will be sanctioned in less than a month of time.

    If your credit rating is poor, it will create problems even in the pre-approved loans. Drawbacks is higer compared to benefits. So, it doesn't make any sense for pre-approved loans.

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