Are you planning to buy a house with a home loan?
There’s a lot to consider, and the process can feel a bit confusing at times. One important step is getting a home loan pre-approval. This step can increase your chances of getting the loan and also helps you stand out from other buyers. But what is home loan pre-approval? And why is it so important? And how can it help you get closer to your dream home?
Read Brick & Bolt blog to learn more details about home loan pre-approval.
What is Home Loan Pre-approval?
Home loan pre-approval or mortgage preapproval is a part of the home-buying process. It signifies the loan officer’s conditional approval to provide a loan based on an applicant’s financial profile. Before the preapproval, he must review the applicant’s income, debt, assets, and credit history. This will help to determine how much money you may borrow, and how much you can pay per month, and what your interest rate will be. However, a mortgage preapproval isn’t a guarantee of loan disbursal.
Many people confuse mortgage preapproval with pre-qualification.
- Mortgage pre-qualification includes a basic estimate of how much of a loan you can get. It is based on the information you provide, but the bank does not check your financial documents.
- Mortgage preapproval includes a detailed check where the bank verifies your documents and credit history. It also consists of a credit check.
Why is Mortgage Preapproval Important in India?
You can’t decide whether you’ll definitely get a home loan with mortgage preapproval. But you can get the following benefits:
Searching Homes Based on Your Budget: By gaining an idea of how much mortgage you can afford, you can explore houses that fit your budget range. This helps you avoid the disappointment of considering homes that are too expensive.
Acceleration of Home Loan Process: Since most of the required information is already submitted during the mortgage pre-approval process, it speeds up the home loan approval once you make an offer.
Prove Yourself a Credible Home Buyer: With a home loan pre-approval, you can show yourself as a credible buyer to a home seller. Because it includes your finances in check, and it also means you are likely to get a loan, making sellers more confident in selling their home to you.
Documents Required for Home Loan Preapproval in India
Getting pre-approved for a mortgage involves the need for the following documents:
Identity Proof: To verify your identity, you need to submit a government-issued ID card like an Aadhaar card, PAN card, passport, or driver’s license.
Address Proof: For address proof, you need to submit recent utility bills, a rental agreement, or a government-issued address proof.
Income Proof: Since the home loan requires income proof, you need to provide the latest salary slips, Income Tax Returns (ITR), and Form 16.
Bank Statements: You need to provide bank statements for the last six months to reflect consistency in income and expenses.
Employment Proof: To confirm your job status, you need to submit an appointment letter or an employment certificate.
Credit Score Report: A copy of your credit report helps in assessing your creditworthiness, which is pivotal in the loan approval process.
Property Details: If you have already shortlisted a property, relevant documents like the sale deed or property title may be required.
By having these documents ready, you can easily speed up the process.
Step-wise Process to Get Mortgage Preapproval in India
You can get pre-approved for a mortgage by following these simple steps:
Step 1: Research different lender options. Compare different banks and non-banking financial companies’ interest rates, processing fees, and eligibility criteria. Choose one lender that suits your requirements.
Step 2: After choosing potential lenders, check your eligibility. You can use different online eligibility calculators to estimate the amount you can borrow based on your income, expenses, and other financial obligations. These tools provide a preliminary idea of your purchasing power.
Step 3: Submit the lender’s pre-approval application form completely with all required documentation to support your financial information.
Step 4: After the submission of your application, the lender will review your information and assess your eligibility.
Step 5: Upon successful verification and assessment, you’ll receive a pre-approval letter stating the loan amount you qualify for. This letter strengthens your offer when making an offer on a home.
Tips to Improve Your Chances of Home Loan Preapproval
You can adopt the following strategies to improve your chances of securing a home loan preapproval.
- Maintain a credit score of more than 750, as lenders base their assessment on this score. It will also help you to lead to favourable loan terms and lower interest rates.
- If possible, clear all your existing debts or loans before applying, as reducing your debt-to-income ratio can significantly improve your eligibility.
- Avoiding job changes or gaps in employment regularly. A stable employment history gives lenders confidence in your financial reliability.
- Keeping all documents accurate and up-to-date can streamline the verification process.
- Don’t apply for many loans at the same time. This can cause multiple checks on your credit report, which might lower your credit score.
Common Mistakes to Avoid During Mortgage Pre-approval
Many people make mistakes during the home loan pre-approval process. The following are some ways to avoid and face those challenges:
- Avoid applying for preapproval too soon when buying a home. Preapprovals usually expire in about 90 days. If you don’t find a home within that time, you’ll have to apply again, which could impact your credit score.
- A very common mistake is not checking credit scores in advance. Understanding your credit standing before applying can avoid surprises later, as lenders consider this score to determine your eligibility and interest rates.
- If you submit incomplete or incorrect documents, it will definitely lead to rejection or delays in the process. Hence, always double-check all materials before submission.
- You should never overestimate loan eligibility based on optimistic self-assessments. You must have a realistic understanding of your financial picture, including debt-to-income ratios.
- You always consider taking the fine print of the pre-approval letter. Read the details in your pre-approval letter; you might face unexpected terms and extra fees. Carefully checking it helps you avoid surprises that could affect your loan.
In a home-purchasing process through a home loan, mortgage preapproval is an important step. By having a home loan preapproval, you can ease the loan process. However, be mindful of common mistakes, such as applying too early or overlooking credit score requirements.
When you’re ready to calculate potential loan payments, Brick & Bolt’s home loan EMI calculator can help you plan your finances effectively.
Hemali Patel