By Kishor Pate
Kishor Pate, CMD – Amit Enterprises Housing Ltd.
A self-owned home is the dream of every Indian, and all of us want to see ourselves being able to go in for it one day. When that day comes, the last thing we want is any reason for delay or insecurity to cloud the decision. This is especially true if one is a first-time home buyer. Obviously, the most challenging and confusing part of the home buying process is the financials.
Confusion here can relate to which the best lending institution is, what type of loan is best and what the conditions are, and what size of home loan one can comfortably pay off over the years of tenure. However, one of the biggest worries for a first-time home buyer with regards to a home loan is how long one needs to wait for its approval.
In this scenario, the best bet for a first-time home buyer is to apply for a pre-approved home loan. Getting a pre-approved loan means that you have already dealt with one of the trickiest parts of the purchase process, and can now focus your time and attention on finding the best property options available. Pre-approved loans also give you an upper hand when you at the negotiation table with a developer.
Understanding the difference between loan pre-approval and pre-qualification
Pre-approval and pre-qualification of home loans are completely different things. Pre-qualification is more like an educated guess on the part of the bank or lending institution about how big a loan you qualify for. This estimate or loan eligibility is based on your current earning power, credit score, financial history, and so on. A pre-approved loan, on the other hand, is a written guarantee by the lender that you have secured a loan.
To grant a pre-approval certificate, loan officers will conduct an employment, remunerations and ‘credit worthiness’ check. This will include collecting all past financial data like loan of credit card repayment history, credit card statements, disposable income, current debts, and more. Generally, all of this would be done using special software.
How to get a pre-approved home loan
The first step towards obtaining a pre-approved loan is finding a lending agency you can trust. It might be one that you know, one that an acquaintance works for, or one that has been reliably referred to you. While any lenders would conduct an extensive credit check, you must find one that is not only willing to lend to you but also has a good reputation on the market.
Another important thing to check is the rate of interest that will be charged on your home loan. The best agencies will come up with competitive rates and also offer helpful customer service. In these cases, the loan officer will actively help you out to get the pre-approval, and discuss the type of settlement you would be eligible for given your salary, investments, tax returns, debts, credit score, etc.
How does a letter of pre-approval help?
An important advantage of a pre-approved loan is that you know your spending limit. You are precisely aware of what kind of property you should be searching for. This eliminates from your search properties that you are not eligible for. Secondly, with a pre-approval letter, you will not have to wait for many of the formalities of property purchase once you come across a suitable option. You have the advantage of being immediately able to book the property using the pre-approval letter. A pre-approved loans also gives you a lot of credibility with builders/promoters, and increases your negotiation power.
Getting a pre-approved loan is the easiest way to buy your dream home in the current market scenario. It is not only assuring but also keeps you within the limits of your affordability – and makes you a highly credible buyer whom any seller will take seriously and extend the best possible deal to. The approval should give you an opportunity to make a choice at leisure, but should not lead to the trap of landing in a circle of indecision and complacency. The pre-approved home loan should be a tool which lets you make a decision when you find a house of your and your family’s choice, and to act on it.
The Author is Chairman & Managing Director ofAmit Enterprises Housing Ltd. is the driving force behind one of the most successful real estate development firms in Pune and beyond. Apart from its signature luxury projects like Montecito in Sahakar Nagar and other premium gated townships, AEHL has also launched highly successful affordable housing projects like Astonia Classic and Colori in Undri and the Mediterranean-style township Astonia Royale in Ambegaon.