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Importanance of getting a pre-approved loan

Posted by Mithi Chinoy in Guide & Tips
Importanance of getting a pre-approved loan
You need to pay for your house but do not have large sums of money in your bank account. So, what do you do? Obviously, you need to raise a loan, either from your bank or from a lending institution. But before you can go house hunting, you should really know just how much you can afford.
loan for House

loan for House

After all, no one wants to fall in love with a dream house, coax the seller to accept your bid only to find that your income is inadequate for the cost of the house. Of course, this means you don’t get the loan or the house. To avoid such a situation, you need to get a pre-approval from your bank or lending institution.

What is the pre-approval process? This involves a close look at your financial picture. To do this, your bank or lender will check out your credit status, your employment level and income and check for any debts, apart from any assets and cash for a down payment.

This entire process could well take a week, but once you invest in this time, you are ready to scout for flats or homes, armed with the knowledge of your budget. This is also important for the seller as a pre-approval gives him the confidence that you can, in fact, buy his home, should he decide to sell to you.

Pre-approval vs. pre-qualification: Now that you know what a pre-approval loan is and how it can help you, let’s find out about a pre-qualification. A pre-qualification is done when the loan officer of your bank or lending institution asks you a few questions to determine your spending capacity. He asks you a battery of questions about your debt, employment, assets, credit, etc. Once he has this information from you, the process is complete. This is done in order to have an estimate of your spending capacity, and any facts you give are not verified.

Getting pre-approved for a home loan: If you have a pre-approved loan, it automatically gives you a leg-up over any other bidders for the same house or flat. To get pre-approved, do the following:

  • Ring your lender or banker and ask for competitive rates on their loan schemes.
  • Choose a loan scheme that suits your financial needs best. Take into consideration the tenure of your stay here and whether your income will increase significantly in the period of your stay here.
  • Furnish your lender with copies of your tax returns, profit and loss statements, bank statements of the past three months, bankruptcy papers and a complete loan application.
What it means to be pre-approved: To be pre-approved has several advantages. They are:
  • You save time house hunting: Once you know just how much your bank or lending institution will give you by way of loan, you can narrow down your search to include only those homes that fall within your loan bracket. This helps you save time on house hunting instead of falling for something you cannot have.
  • Invest time in taking a close look at probable homes: By filtering the homes that don’t suit your budget and focusing only on those that do, you can spend more time looking at those you could take. You can check out the facilities such probable places offer like a garage, or garden or even a swimming pool.
  • Don’t be sad, be confident: Now that you know how much you can fork out you’re your home, you can go into home deals with confidence. You can be confident of not being a victim of any hidden costs or ugly surprises that could disqualify you from a loan.
  • Close the deal real fast: Since your loan application does not have a window period, your bank or lending institution can easily expedite your procedure for processing it.
It is to your advantage to have your loan pre-approved at the time that you start house-hunting.
By Mithi Chinoy
Bad Credit? You're Approved for loans and VISA!
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