Things you need to know about Home loan Approval-In-Principle
Not many people are aware that home loan denial can be avoided by checking for Home loan Approval-In-Principle. Mr Swapnil and his wife Meena spent more than six months finding their dream home. From short listing various projects to selecting the ideal location, the couple finally managed to reach a good price they deemed affordable after active bargaining with the developers. With all aspects of their dream home finalized, they felt it was the right time to approach their bank for a home loan request. The couple however got the shock of their lives when the bank rejected their home loan application due to low CIBIL score. A car loan default some years back and some credit card dues had impacted the credit rating of Swapnil leading to the denial of home loan.
The couple are not the only one who face such rejections after doing all the hard work of short listing the property of home they are interested in buying. This can be avoided if they had Home loan Approval-In-Principle.
Approval in principle
The concept of getting approval before hand is known as approval-in-principle which can be taken as much as one month in advance before actual buying of the property. Let us look at various aspects of approval-in-principle and its associated advantages.
“Approval in principle” as the name suggests is a pre approval for any loan amount usually for housing loans before the actual purchase of the home. It takes into account the credit history of the loan applicant and overall financial health and repayment history.
In simple words approval-in-principal offers a guarantee that the bank would approve of a loan of the approved amount when applied within a fixed timeline. The bank however will still undergo all its tests and approval mechanisms at the time of actual delivery of the home loan.
What makes Approval-in-principal or AIP such a significant tool is that is gives the buyer an exact idea of how much loan would be sanctioned which can be useful in determining the overall budget of the house. Before making any down payment or commitment to the builder and then finding out that home loan has been rejected, AIP gives an assured loan approval for a predetermined amount within stipulated timeline.
Advantages of Approval in principle
Approval-in-Principal (AIP) offers an assurance from the bank that they would sanction a loan subject to stipulated amount if applied before the deadline of one month. In some countries, the deadline for AIP is as high as four months. Indian banks however offer AIP for a maximum limit of 1 month. Without an AIP loan approval all the hard work of short listing the apartment premises, the locality, builder, price etc may go to waste if the bank finally disapproves the housing loan. With an AIP, home loan buyers can have a surety of the home loan they can avail and use the same to finalize their budget for their dream home purchase.
Eligibility Conditions
Banks give an AIP only after due diligence check of the applicants financial background, history and repayment track record. The banks check with the CIBIL score before confirming any AIP. A bad CIBIL score may lead to a denial of AIP as well as any future loans.
Apart from financial history and repayment track record, AIP also considers any concurrent existing loans and debt commitments. For successful applicants CIBIL score must be respectable to be eligible for AIP. Although AIP offers an assurance for the home loan up to a fixed amount if applied within the timeline of one month, any lack of information or desired documentation for home loan can mean denial of home loan even after AIP.
