For a house-hunter, the second & one of the biggest hurdle after zeroing in on the property for their dream home is obtaining a PNB housing loan. But since the past few years, a new product in the housing industry that has been gaining a lot of prominence and popularity is a pre-approved home loan.
With pre-approved home loans beginning to come into the bigger picture, prospective PNB housing Finance borrowers and homebuyers can have pre-approved loan offers in hand with in-principle approval before deciding upon the property. While this may sound lucrative, make sure you have a closer look at these loans before going ahead and availing them.
Firstly, simply put, pre-approved loans, as their name suggests, is offered by a lender to target eligible homebuyers depending upon factors like credit score, income, location etc.
As a homebuyer or consumer, you cannot apply for this pre-approved DMI housing finance loan, unlike a regular home loan, as its pre-approved nature means you will be offered the loan by the lender itself if eligible.
Now let’s dig deeper and understand this in detail.
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Advantages of pre-approved home loan
Better scope of negotiations with builder/seller
With a pre-approved DMI housing finance loan offer in hand, the entire process of identifying and selecting a property for your house becomes slightly easier as your search gets narrowed down to the properties that fit into the pre-approved loan amount offered by the PNB housing loan. Apart from imparting more flexibility in negotiations, possessing the pre-approved sanction letter also boosts your credibility with builders/promoters and increases your negotiation power to finalize a suitable property in accordance with the pre-approved loan limit.
Even more, it gives you a head start over those availing regular home loans by first scouting for a property and then approaching a lender. Developers or sellers may offer preferential treatment and attractive discounts to applicants possessing a pre-approved home loan offer due to their ability to make faster payments compared to other buyers.
Quicker loan processing
During the pre-approval stage, DMI housing finance generally evaluates your application based upon your income, credit profile and repayment capacity. Once the property is finalized, the only task left is the inspection and evaluation of the chosen property, post which the final loan disbursal is likely to place, thereby reducing the turnaround time of the entire loan process (from loan approval to disbursement).
Facilitates financial planning
Having a pre-approved DMI housing finance loan offer not only helps house hunters to stay focused on property search but also lets them plan their finances according to the loan amount mentioned in the sanction letter. With a clear idea about the approved loan amount, it becomes easier to plan the budget for your dream home and arrange money in case of a shortfall after taking into consideration the LTV ratio and down payment requirement.
Disadvantages of pre-approved home loan
Limited validity of sanction letter
While searching for a suitable property for your DMI housing finance home loan, make sure you keep in mind that the sanction letter provided by lenders is valid for a limited period, which is usually two to six months. If the home buyer fails to finalize the property within this validity period, the loan offer would have to be reappraised by the lender.
Disbursal is not guaranteed.
The disbursal of the pre-approved PNB housing loan is subject to timely identification and finalization of property by the home buyer within the validity period of the sanction letter. Post legal checks and evaluation, if the lender approves the property, the loan disbursal would be carried out smoothly. But in case the borrower’s repayment capacity deteriorates during this period, or if the chosen property involves issues such as lack of clarity regarding property title and is unable to meet the parameters laid out by the lender, the pre-approved loan’s disbursal may get stalled, and the home buyer might have to look for some other property.
Loan terms may change.
The loan terms, including applicable interest rate, loan amount, tenure and the corresponding EMI indicated in the pre-approved DMI housing finance loan offer, may be subject to changes at the time of disbursal. The final loan terms would be worked out at the time of loan disbursement. For example, by the time you choose a property during the validity period of the sanction letter, the interest rates may have changed, implying that the interest rate actually charged or applicable to your pre-approved loan may be different from the one mentioned in your offered sanction letter.
Also, since the pre-approved PNB housing loan is usually offered prior to finalization of property, the lender would decide the final loan amount for disbursal post verification of the legal and technical validity of the project, type of property, and in accordance with the prescribed LTV ratio and down payment contribution of applicant.
There is no doubt that pre-approved home loans do have their own set of positives to focus on. With a higher scope of negotiations with builder/seller due to the existence of a pre-approved list of lenders and quick loan processing being two key features, these loans are something to not ignore for sure. But their limitations like limited period offer validity, change in terms being a possibility, and no guarantee of disbursal, make them less lucrative if seen as a wholesome product for something as big as owning a home through a home loan.
So, after weighing it all in, it’s entirely the eligible customer’s take on what to do. The prospective homebuyer can take the pre-approved home loan if its suits the financial condition, and other factors like location, interest rate, tenure etc., are taken care of by the lender who is offering the pre-approved housing loan.
Else, it’s fine to yourself do the research and apply for a suitable lender when you seem ready.
Before accepting a pre-approved home loan offer, it’s also vital to ensure that you are financially ready to take the loan when offered and do not end up saying yes just for the sake of receiving the offer. Remember, it is you who has to repay the EMIs! So be careful.