Why do you need to secure an in-principle Home Loan Approval Before Purchasing a Home: A Lesson Every Buyer Should Learn

The Home Was Right. The loan was wrong.

Rahul and Priya were searching for their ideal home for a year in Mumbai.

Every weekend, they would check out sample flats, compare locations, see how big the place was, and so on.

Then one day, they found the perfect apartment. It was a beautiful 2 BHK.

The location was ideal, close to the train station and the school; the society had everything they were looking for. The price of the apartment was ₹ 2 crores.

The builder told them that there were just a few properties remaining and recommended them to book it right away. Rahul and Priya were thrilled to finally have found their dream home, so they began discussing how much down payment they would be able to afford. They had savings; they both had stable incomes. Hence, they thought that everything else would be covered by the loan. But there was one significant thing that they had not taken care of. They had never checked what kind of a loan they were entitled to receive.

When finally applying for a loan, they were in for an unpleasant surprise. Based on their income, already existing EMI obligations, credit profile, and repayment capacity, the amount of loan expected was much higher than the one they were finally given the right to receive. Hence, their dream home suddenly became much more complicated than just making a decision. The couple needed to find a much bigger amount of money on their own; think of the property again or continue searching for the property.

That is why having an approved home loan first can solve many problems before buying the property.

What is an in-principle home loan approval?

An in-principle approval can be characterized as the step where you can know your eligibility to borrow a certain amount before making any decision.

An in-principle home loan approval from a lender means that the lender has carried out the opening checks and has found out how much home loan you can avail. The lender considers a variety of parameters, including

• Your income level
• Other EMIs and debts
• Your credit report
• Age
• Job or business security
• Repayment ability

Keeping all of these factors in mind, the lender decides about the possible approval amount.

In simple terms:

Get your budget right before you start looking for a home.

By checking your eligibility with a platform such as Loanbazaar, you can make your property search with much more clarity.

1. Your Ideal House Shouldn’t Turn Into a Financial Shock

Let us consider another situation:

Amit makes ₹1.50 lakh every month. He finds a flat that costs ₹2 crore and thinks:

“I make good money, so taking a home loan will not be an issue.”

However, Amit also has:

• Car loan EMIs
• A personal loan EMI
• Credit card bills to pay

When the lender calculates his home loan eligibility, it takes into account his current obligations.

This means that the amount of home loan he can actually avail himself of may differ from what he expects.

This is one of the biggest blunders committed by home buyers determining their home loan eligibility on the basis of their salary.

But lending organizations consider the overall financial situation.

Taking a pre-approval can help one understand how much he or she may borrow before paying the booking fee and getting emotionally attached to a property.

Loan Bazaar can help you get more information about your probable home loan eligibility.

You might be enticed by different products, but, in the end, there is a budget that will detain your purchases.

The same methodology applies to buying real estate.

If there is no information concerning your eligibility to borrow money, you may spend a lot of time and effort visiting properties priced at ₹1 crore when in fact your available budget is about ₹75 lakh.

This might lead to:

Wrong choice of properties → Loss of time → Disappointment → Pressure

In this regard, the in-principle approval of the loan could solve problems.

Instead of asking:

“What property do I want?”

You may switch the question into

“What property do I have to choose more affordable or more extravagant and expensive?”

Suppose your savings, available funds, and loan eligibility make it possible to set an average budget of about ₹80 lakh. Then you will be able to look for properties only in this segment instead of checking the houses far beyond your possibilities.

Thus, your real estate search becomes much easier and quicker.

Before beginning your search for the perfect property, Loanbazaar can help you get to know how well off you are financially.

2. You Will Be Able to Prepare the Down Payment Before It Is Too Late

When taking out a loan to buy a property, you should keep in mind that you will also need to have your own money.

Not only will you need to pay the initial payment to the seller, but you may also need to pay more charges to the bank, such as stamp duty, registration, and others.

For instance: 

Cost of the property: ₹90 lakh

Expected Home Loan Amount: ₹70 lakh

This means that you will be required to pay approximately ₹20 lakh from your own pocket.

And what if you find this requirement out after having bought the property?

You will probably need to do the following immediately:

• Liquidate your investments.
• Ask your relatives to lend you some funds.
• Borrow additional money.
• Collect the funds in a hurry.

Checking your savings and estimating your expected contribution will help you make informed decisions before buying a house. 

Even though this process could have been done fast and easily, planning in advance is infinitely better than arranging everything at the last minute. 

Loan Bazaar gives people an opportunity to realize potential opportunities of obtaining financing for home purchases and plan their buying experience properly.

3. Good CIBIL Score Makes the Big Difference

Most consumers check their https://loanbazaar.co/loan-emi-calculator/score right before their home loan application process, after which they often find unexpected information.

 For example, they may realize that their credit card payment was late many years ago or even find wrong data in the report. However, having that information can help consumers take appropriate measures before purchasing the property.

For example, Neha intended to purchase property in the next half-year.

Before diving deep into her search, she checked her finances and found that her credit history lacked the necessary details.

Instead of waiting until the last minute, Neha took her time managing her debts and improving her credit record.

Once she was ready to move on, she had better knowledge about her home loan.

The takeaway from this story is simple:

The earlier you know about your finances, the more time you will have for preparation.

By using the services of Loanbazaar, homebuyers can get a head start on understanding their credit history and the available loan options before making the big property decision.

4. You’ll Feel More Confident When You Find Your Ideal Property

In a flourishing real estate market, good properties can receive multiple offers.

At times, after searching long enough, you can finally find a home, but you have to act fast.

If you have already done some homework regarding your home loan eligibility, you will be in a better position than somebody who has just started the financing process.

Here are some things that you already know:

Your budget,

Your anticipated loan amount

Therefore, this gives you a sense of comfort when assessing a house.

An in-principle approval is not enough for the approval of a home loan.

However, it can make you better equipped for the next step of the process.

6. Avoid Picking Out the House First and Lasting the Loan Second

The best home-buying route commonly follows these steps:

1) Review your personal financial situation.

This involves understanding your earnings, savings, pending loans, debts, and creditworthiness.

2) Find out how much home loan you are provisionally eligible for.

This includes understanding your borrowing capacity.

3) Calculate your down payment amount.

This means that you must know how much out of your own pocket you can put down.

4) Determine your property price limit

This means that you should look for homes that are realistically priced according to your financial situation.

5) Start searching for your ideal home.

Once you know how much the down payment is and how much the finance company will give you, begin to look for a house.

This way, the process ensures that you will avoid one of the common problems in the house buying process, which is being in love with a home without knowing anything about your finances.

Conclusion: Know Your Loans Prior to Property Search

Purchasing a home is always an emotional decision, but the financing of such an action must be planned carefully.

A home loan preapproval can give you very useful information prior to the actual purchase:

1. Knowledge about your home loan eligibility.
2. Knowledge about your possible budget for the house you want to buy.
3. Knowledge about your down payment options.

And knowledge about whether the home of your dreams is within your means.

At Loan Bazaar, we think that the home purchasing process starts before visiting the property.It starts with understanding one’s financial possibilities and checking the eligible amount that one can spend on the property.

So before making the deposit, before the actual purchase and before making one of the most important financial decisions in one’s life, one should determine their eligibility for a loan.

FAQ: Frequently Asked Questions

1. What does it mean to get an in-principle home loan?

   The in-principle home loan means that a loan will be offered to you based on your income, current debts, credit history, age, and ability to repay.

2. Is the in-principle sanction a final home loan approval?

   No. The in-principle sanction is not the final home loan approval. For final loan approval, banks will perform various checks like documentation, eligibility criteria, and property verification.

3. Is it advisable to get an in-principle approval before finalizing the deal?

   Yes. It is advisable to have an idea about your eligibility before looking for a property. It gives you an idea about how much you can afford to pay.

4. How do home loan sanctions in principle aid buyers?

   It offers information on how much you are eligible to borrow that helps in the process of property selection and decision-making.

5. How can Loan Bazaar aid prospective home buyers?

   An approximate amount you can borrow from Loan Bazaar is determined, providing you with the right direction to choose the right loan type to get started in your home-buying process.