It is always a good exercise to know your borrowing limit before you start scouting for a home. But it is important to remember that this pre-approved number is just that – a number and should not be taken as the final limit.
In other words, one should remember that such borrowing limits do not guarantee a sanction or for that matter, disbursement of the same amount. In fact, banks can even cut down on the amount promised. As a public sector banker explains a pre-approval only means that one qualifies for the loan.
“Just because you have a pamphlet stating that you are eligible for a pre-approved loan, does not necessarily mean that you will get it,” says Harsh Roongta, CEO, Apnapaisa.
Let’s first look at how banks issue a pre-approved loan certificate. This loan is a letter stating that the home buyer has in-principal approval to take loan up to the specified limit.
The bank will first check your income and decide how much it can lend, based on its loan-to-income ratio. Some banks will also check your credit score. Here, they will check your outstanding loan, credit debt and your track record. If everything fits the bank’s criteria, you will get the letter.
You need to submit documents such as income proof, bank accounts’ statements, 3 years’ IT returns, photocopy of PAN card, proof of residence and identity proof.
In most of the cases, the terms and conditions of the loan are valid for six months. But the interest rate specified in the letter can change as and when the bank rejigs its interest rate.
You may face the following hurdles:
Documents
There will still be a lot property-related paperwork. These include no-objection certificates, title-related papers, occupancy certificate and so on.
Track Record
Even though you have the in-principal approval, banks will now do a thorough check once again on your qualification and repayment capabilities. This will include things such as submission of your investment documents.“Most of the rejections take place at this stage because the customer's track record may not match with the bank’s records,” Roongta said.
Property Evaluation
Banks do property evaluation on their own. If they think the property is overvalued, they may reduce the eligible amount. Also, if the developer does not have all the approvals in place, the loan will be rejected.
All these hurdles may prolong the processing time for the loan. If you are going to a public sector lender, the pre-approved loan may not come as a great help. Private players are usually much faster in issuing the cheque.
A pre-approved loan is just a handy tool if you want to negotiate with the builder on property rates. But if you think that is a final word on your loan eligibility, there could be some serious hurdles.
