Getting started on the journey to buy a new home is a major step. Owning a home has many benefits and is one of the biggest purchases anyone can make. The entire process of home acquisition should be carefully thought out. Financing is an important aspect to consider, with a pre-approved home loan being one of the choices available.
The meaning of pre-approval
To buy a home, you need substantial investment and that is why many people opt to get home loan for this funding. Anyone with good financial banking may qualify for pre-approval. All that is needed is the submission of your loan application and the necessary documents to the lender.
A pre-approved loan is normally sanctioned by a financial institution and bank. This is only given after the borrower’s eligibility has been determined. The amount offered is normally based on your repayment capacity, age, credit score, employment history, and income.
It should be noted that getting this type of loan and its disbursement are done in different timelines because they are independent processes. After pre-approval, the financial institution still needs to scrutinize the technical and legal aspects of the home you want to purchase. After all parameters are reviewed, you will get the final letter with all details. Here are some of the advantages associated with this type of loan.
- Quicker loan processing and disbursal
Pre-approved loans enjoy faster sanctioning and disbursal because all loan eligibilities and the borrower’s repayment capacity have already been verified. The only thing left is to validate the documents submitted and any other pending legality.
- The borrower has a better chance to negotiate
If you get a preapproved loan offer, you are in a better position to bargain with the seller or builder. This is because a substantial amount has already been secured for purchase. This means that the seller or builder will view you as a serious prospective buyer. Pre-approval also indicates a high credit score, which you can use to bargain for flexible repayment plans and a better home loan rate.
- A more focused search for a home
The housing market has many options such as flats, apartments, and villas among others. When you have access to a pre-approved loan, you already know more about your eligibility. This puts you in a position where you can start looking for homes that fall within your budget as you wait for the process to conclude. This saves you time.
- Better financial planning
When you have access to a pre-approved home loan, it becomes easier to assess your financial standing more clearly. You have a better understanding of your eligibility and the amount that is accessible to you. Tools like EMI calculator can help you plan your finances better even before the loan is processed.
- Faster turnaround
In many financial institutions, there are appointed teams tasked with handling pre-approved home loans. As such, clients may end up enjoying a faster turnaround time than with other loans.
Loan against property
Apart from pre-approval, a loan against property (LAP) can help you access a significant amount of money. This type of financing can be beneficial for buying a home or other life events. You can use real estate to serve as collateral and access a higher amount at a competitive rate. This means a lower financial burden when compared to unsecured loans. With LAP, you can access:
- Reduced interest rates: This is a secured loan, which reduces the chance of default. This means a lower home loan interest rate compared to unsecured loans without collateral.
- Higher loan offer: With a loan against property, you can enjoy larger loan amounts. The property value affects the total amount approved.
- Flexible tenure: LAP is normally more flexible allowing the client to spread payments over a longer time. This means lowered strain in terms of monthly installments.
- Tax benefits: Loan against property has tax advantages especially when used to purchase real estate like buying a new home. You can deduct the interest charged from your taxes legally. LAP is appealing to borrowers mainly because of the lowered tax burden and long-term savings.
- LAP is multipurpose in nature: When you take this type of loan, you can enjoy greater flexibility in terms of how the funds are used. This makes it much easier to manage your commitments, which are high-value in nature. The other thing is that the repayment pressure is greatly reduced because of the lower interest rates offered and flexible repayment options. This allows the client to manage their cash flow better.
Bottom line
Getting a pre-approved loan is one of the best ways of simplifying the entire home-buying process. With the right financial institution, you can reap all the benefits associated with this type of financing. Competitive rates and faster turnarounds are some of the advantages associated with this type of loan. You also get more time to get a clear picture of your finances and repayment obligations.
Loan against property, on the other hand, depends on factors that are quite similar to pre-approved options. They come with many advantages when compared to the collateral-free options. The similarity between the two options is higher loan amounts and better rates, translating to long-term savings.
