How to get mortgage pre-approval

Mortgage pre-approval in India is also called home loan pre-approval or pre-approval of the home loan. How is it different from mortgage approval?

Mortgage pre-approval means the sanctioning of the home loan before the property has been finalized.

Here is what normally happens: a borrower comes across a property they want to buy.  They approach the bank (or any other financial institution that gives home loans or mortgages). The representative from the bank inspects the value of the house, the neighborhood, and the feasibility of the mortgage vis-à-vis the property and then approves the loan.

In the case of mortgage pre-approval, you don’t need to finalize a property. You can get the loan before finalizing the property, and then start looking for properties according to the money you have in the bank.

Mortgage pre-approval doesn’t mean the money comes to your bank account. It means the bank is ready to give you the in-principle sanction letter that you can then show to the various developers or property owners to make your offer more convincing.

The benefits of mortgage pre-approval

A pre-approved mortgage is not an enticement from a bank or a lending institution. It is just a way to empower you so that you can find the right property without financial constraints and without uncertainty.

The pre-approved mortgage also depends on your financial background. You need to fulfill certain criteria before your mortgage can be pre-approved.  In most of the cases, even before the bank makes an offer to you, they have assessed your financial track record including creditworthiness. They know how much your monthly income is. They are aware of your cash flow. So, most of the job is done. You are highly likely to get your final mortgage approved.

Listed below are a few benefits of mortgage pre-approval:

1.    Your property search can be more targeted

With the mortgage pre-approval sanction letter in your hand, you know exactly how much finance is available to you. There is no uncertainty. You are aware of your budget. For example, if you know that you can get ₹ 80-90 lakhs from the bank, you can look for a property around this much amount with provisions for some extra expenses.

2.    You can negotiate better

One bird in the hand is better than two birds in the bush, as the saying goes, the property owner is more likely to negotiate with you rather than someone who hasn’t had their loan approved yet. Your landowner, looking at the sanction letter, knows that when it comes to buying the property, you have the needed wherewithal. Being more able to buy the property, you can even ask the property owner to bring the price down because you are ready to pay compared to the other interested party that is in their exploration phase.

3.    You can plan your finances better

You know how much money you’re going to spend. Based on your pre-approved mortgage, you know that by the time you buy the property, how much cash will be available to you and what you can do in case you have some spare cash, or in case, you need to arrange some extra cash.

4.    You save time when finalizing the property

Mortgage pre-approval is faster than the actual loan. The application is processed faster. Even at the time of the final approval, all your documents have already been processed.  The only process left before your loan is dispersed is the property documents. Once they are verified, the loan is transferred to the developer’s account.

Highlights of a pre-approved mortgage

Mortgage pre-approval comes with multiple caveats. They include:

• Mortgage pre-approval doesn’t guarantee final approval. This can get you in a fix especially when you have completed the deal with the property owner based on your pre-approved mortgage sanction letter.
• The pre-approved mortgage comes with an expiry date. It is valid for 3-6 months (based on the lender and the date mentioned in the in principal sanction letter) and after that, you may have to apply for a pre-approved mortgage again.
• You are stuck with the same interest rate at the time of mortgage pre-approval. It means, even if the interest rates have gone down at the time of the final approval, you will need to pay the interest rate you agreed upon during your mortgage pre-approval process.

The process of getting mortgage pre-approval

The process of getting a mortgage pre-approval is the same as getting the final mortgage. The only difference is that at the time of mortgage pre-approval, you don’t have the property documents with you because you haven’t yet decided on the right property. You would also need to submit your income proofs as the final sanction would be based on that. Other than that, the process is the same, such as:

• Income proof: You will need to upload your income proof either from the job that you have or the business that you’re doing.
• Employment proof: This may include the appointment letter or a letter of recommendation from your employer.
• Bank statement: Your bank statement for the past 6-12 months is needed.
• Photo ID proof: You will need to upload your recent photographs
• ID proof: You will need to upload your Aadhaar card or passport for verification.
• Proof of residence: This may include the property documents of your current residence (in case you own the property), or your lease document or utility bills carrying your residential address.
• Credit score: This will be checked by the bank on its own.

Once these documents are submitted and verified, your mortgage will be pre-approved, and you will get the sanction letter.

Conclusion

Mortgage pre-approval can speed up your home search process. It makes the search more convenient and gives you greater bargaining power. It helps you plan your finances better because you know how much cash will be available to you once you find the right property. In fact, there are many property owners who negotiate with only those people who have gotten their mortgage pre-approved.

Although mortgage pre-approval is not a guarantee that you will finally get the loan, it is like the proverbial elephant’s tail. By the time you need the cash, most of the work is already done and you just need to share the legal property and income documents. Once you do that, you get the money that you need to buy the home you always desired.