Home financiers may tell you that getting a pre-approval for your home loan is a great idea. They’ll argue that it will give you a quick fix on your eligibility as well as help expedite release of payment once you have identified your dream home. True, it is a great relief when you are looking to close a deal with an impatient seller who is being courted by other buyers. But there is a flipside.
What most financiers won’t readily disclose while urging you to quickly share your income details is that any such pre-approval will come with an expiry period, which can be just a few months away. State Bank of India’s pre-approval, for instance, remains valid for only four months. And each time you go through the process, you are charged a processing fee that ranges, for most financiers, from 0.5% to 1% of the proposed loan value. So, if you are looking at taking a home loan of Rs.50,00,000, you could end up paying Rs.28,090(@0.5 per cent+ Service Tax) or more as processing fee.
The other aspect to plan for while getting a pre-approval is your ability to singly meet the income obligations required to service a loan. Say, that you are looking to buy a home by pooling in your savings of Rs.20,00,000 and a home loan of `65,00,000. With a monthly income of Rs. 1,25,000, or a tad less, you would be eligible for such a loan. However, if it so happens that you zero in on a house that fits your requirements to the t, but has an asking price of Rs.100,00,000, you may need to take a loan of Rs.80,00,000 instead of the Rs.65,00,000 planned earlier. To do this, you may need to make your spouse a co-borrower. If you decide to do this after identifying the property, you won’t save the time you should have by getting a pre-approval. Besides, you may need to pay another round of processing fees—unless you can swing an exemption from your lender. The smarter option, therefore, is to get the pre-approval for an enhanced amount with a co-borrower. If you alone can and wish to service the loan after identifying the property, it won’t cost you any more time or money.
In short, only if you are sure that you will be buying a home within a few months should you go for a pre-approval. And even in such a case, maximise your eligibility by including a co-borrower, if you have the option.
