Should you take a pre-approved home loan? Are they advantageous?

By Ambari Datta Gupta
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    Should you take a pre-approved home loan? Are they advantageous?
    Pre-approved home loans are the loans that are given to you even before you buy a house. If you want to buy a house and then apply for a loan it takes a lot of time for the loan to get sanctioned.

    Moreover, it may so happen that the bank rejects your application for a home loan. In such cases, a pre-approved home loan helps you to buy the house.

    Pre-approved home loans may look quite attractive to you but in reality they might not be the best for you. So, its better if you look at the pros and cons of such loans before going for it.

    Benefits of pre-approved home loans

    1. Quick Loan Sanction: It may happen the you select a property and then apply for a home loan and the bank sanctions the loan after three months. In the meantime the house got sold to some one else. But, if you opt for a pre-approved home loan then the processing time for sanctioning the loan becomes quicker. You can save time and energy too.

    2. Better negotiation power: If the seller finds out that you have a pre-approved home loan then he takes you as a serious buyer. This will give you a better chance for bargaining and you can ask for discounts.

    3. Focus on selecting the home: When you know that you already have a loan approval letter then you can focus on selecting the right house for you.

    4. Trust factor of the brokers: If you are searching your house with the help of brokers then they will go an extra mile for you to search the perfect house for you.

    Disadvantages of pre-approved home loans

    1. Processing fee: Some banks charge a processing fee for sanctioning the pre-approved home loan. These fees are non refundable. So you must compare the processing charges of different banks before going in for a pre-approved home loan.

    2. Fixed time frame: The pre-approved home loans are not for eternity. They have a fixed time frame within which you have to select a house.

    3. Spending impulse: One you have the pre-approved home loan the urge to spend it will start working at the back of your mind. You might want to buy a house over and above the limit because you already have the access to easy money.

    4. Approved Vs required amount: It may happen you end up selecting a home for which you need more amount than your pre-approved home loan is providing you. So there is a chance of mismatch between the supply and demand.


    If you are looking for home loans with fixed interest rates then definitely pre-approved home loans are not for you. They offer floating interest rates. Moreover, a large amount of you credit gets blocked even before you buy the house.

    Story first published: Wednesday, July 9, 2014, 15:07 [IST]
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