Financial experts suggest that you should try and get a larger amount for your pre-approved Home Loan. Most individuals spend a significant amount of their time in shortlisting the property. Later on, they realise that the maximum Home Loan amount is inadequate to finalise the buy.
A Home Loan that has been pre-approved before you purchase the home endows you with the freedom to shop around for the property.
How Can a Large Home Loan Be Helpful?
One of the biggest advantages of getting a pre-approved Home Loan is that you can get a higher amount of loan sanctioned according to your economic credentials.
Although this can be a lifesaver if you’re looking at buying an expensive piece of property, it’s important to note that just because you can get a large amount, doesn’t mean you should. Ensure that you can pay it off easily without straining your financial resources. That’s more important than getting a large loan.
Once you receive the sanction letter, ensure that you’re already equipped with a plan to pay off the monthly EMIs.
Activating the Own Contribution Receipt at a Later Date
The Own Contribution Receipt or the OCR is the part of the price of the property which you spend from your own pocket. Banks or financial institutions won’t finance the whole cost of the property that you are willing to purchase. You are required to pay a percentage of it on the basis of the loan to value ratio or the LTV.
At the time of disbursing the loans, the lending authority often uses this OCR as a kind of yardstick to compute future disbursements. This is true for a property that is under construction since the bank or financial entity will only disburse the loan when the OCR matches the disbursal of the lender.
Thus, when you have a sanction letter of a high amount of pre-approved Home Loan, the OCR yardstick is in your favour at the stage of construction or payment. That gives the banks some assurance that you’re actually capable of handling the entire loan and have the means to back up your financial claims.
What are the Advantages of the Pre-approved Home Loan?
Some reasons why you should opt for the maximum amount of pre-approved Home Loan include:
- Quick Processing: Once you’ve received the sanction letter of a pre-approved Home Loan, you can apply for the loan as soon as you finalise the property. This means that there would be no more issues regarding your application.
- Hassle-free Disbursals: When the OCR for the Home Loan disbursals kicks in at a later stage, not only are your Home Loan repayments taken care of, but you’re also able to retain your own funds. You can invest that in other financial products.
- Functions as a Bargaining Tool: You can also make use of the maximum Home Loan amount as a tool to bargain with your builder. Most builders look to expedite the sale of their property. Because of that, they’ll be eager to deal with a buyer who is equipped with a pre-approved Home Loan. If you’re lucky, you can end up getting your property at a discounted price.
Having a pre-approved Home Loan can be incredibly beneficial when you’re in the real estate market. Not only is it a lot more easier, but the entire repayment process is also a lot less troubling.
Arwind Sharma is a financial advisor with an experience of more than 7 years. He has worked for topmost financial firms in India and has been a visiting faculty at many reputed institutes in India. Currently based in Pune, Arwind Sharma is a name to reckon with when it comes to financial management for big brands. A post-graduate in business economics, he is an alumni of Princeton University, USA. During his free time, Arwind teaches children from marginalised sections of society and also work on his blog.