Should You Apply for Pre-Approved Home Loan?

Updated on February 28, 20154 mins read

The biggest concern about buying a house is getting a home loan to finance it. You finalize the property, apply for a home loan and wait for the bank to get back to you. This can take as long as 3 weeks. What if the seller gets impatient and decides to sell the property to another buyer? Or what if the bank rejects your loan application and you have already given the seller a token amount? If the seller is un-cooperative, you may have to forgo that amount.

So how about you get a home loan approved even before you finalize a property?

This is where pre-approved home loans come into the picture.

What is a pre-approved home loan?

A pre-approved home loan is intent, or in-principal approval given by banks or other lending institutions based on your eligibility. This is decided by several factors like your income, previous track record in repaying loans, existing loans and your credit score. Based on this the bank will approve of lending you a certain amount which can be valid for a month to 6 months, depending on the bank’s policies. Most banks give an official letter stating that you are eligible for taking a home loan pegged at the offered amount.

Does it mean that a pre-approved home loan is guaranteed?

Pre- approved home loans are never guaranteed. The bank or lending institution can always decide against giving you a home loan if your application doesn’t match up to their terms and conditions.

For example, if you select a property which does not have the required legal documents or is a very old property, then the bank can reject your application.

Further, if there have been any changes in your income or dependencies within the validity period of 6 months, the bank can review their decision to give you the home loan.

How can you apply for a pre-approved home loan?

The application process is the same as applying for a regular home loan, the only difference is that you will have to list your property as ‘not defined’ in the form. To get pre-approval, you will need to provide several documents to verify your eligibility, such as residence and identity proof, latest salary slips, form 16, certificate and proof of business existence etc. This will depend on whether you are salaried, self- employed or an entrepreneur.

So why should you apply for a pre-approved home loan?

There are several factors that make pre-approved home loans such a lucrative option. Over the years, there has been a surge in the number of property buyers who go for pre-approved home loans. Here’s why;

Availability of discounts

Look out for the discounts. Most banks offer a discount on the interest rate of a pre-approved loan.

Quicker loan processing                 

With the bank already having most details about your finances, the time taken to process the loan is almost reduced to one-third of the time taken to process a normal home loan.

Negotiating with your seller

Having a pre-approved home loan in your hand sure does give you an edge when it comes to negotiating with your seller. The builder is aware that your finances are ready and you are a genuine buyer as pre-approved loans are available for a specific period only.


It helps in planning for any property investment and the extent of loan that one can depend on.

Real estate consultant’s role

If the property is been sought through a real estate agent he would be proactive in providing some good options since he would be sure of the purchase and his subsequent commission.

Are there any factors that you should look out for?

Do consider the following while going for pre-approved home loans:

Fixed time-frame

Pre-approved loans are valid only for a certain period of time. So if you have been offered, say for example, a pre-approved home loan, you need to shortlist your home at the earliest. The money is not released till you have selected the property and have all the formalities in place.

Additional processing fees

You end up paying processing fee twice in cases where you don’t use the pre-approved loan within the valid time and you later opt to get it approved.

Before you leap in, here are a few questions you need to ask yourself when such loan offers are made to you:

  1. Do I really need the loan? Do not go in for it simply because you have been offered one. Remember, every loan comes at a cost. So if you really don’t see the need, stay away from it.
  2. Does the pre-approved loan offer any extra benefits? Of course, such loans do have their share of advantages as mentioned above. Nevertheless, do a comparison with a regular one and see if you save on the cost.
  3. Is the loan amount right for me? Banks pre- approve loans on the basis of your credit history and any previous loan repayments. So the amount approved may actually not be as per your requirement. The first step in this regard is to decide on the loan amount on the basis of your requirement and not because a certain amount is being offered to you.

Pre-approved loans could be a boon for many who would like to plan their real estate investments, but such sanctions would only come if one is good with his/her financial transactions and track record.



Tarini comes with a degree in Mass Communication and Media studies. She joined SwitchME as a content writer and moved on to being an assistant product manager. Tarini is an experienced Content Strategist with a background in Product development and management. She is skilled in SEO, social media strategy and online content marketing and likes to travel when possible

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