If you are a serious home buyer, you will begin the process of finding a home in their lender’s office. You start by discussing loan options and budgeting. The lender evaluates your credit and you can find out your price range. Most home sellers require you to have a pre-approval letter. Having a pre-approval letter means that the lender has verified the buyer’s documentation and has approved a specific loan amount.
A pre-approval make a conditional commitment to lend you a certain amount of money even before you decide on buying a property.
Things you need to be pre-approved
If you want to be pre-approved for a home loan, you will need the following:
- Income proof: You can submit your recent pay slips, salary certificate, last 6 month’s bank statement, and any other form of income.
- Proof of asset: This you will need to show that you have enough funds for the down payment. It can be your bank account statement, fixed deposits, mutual funds, etc.
- Good credit: If you have a good credit, your interest rate will be lower. If your credit score is not good, there is a good chance that your down payment will increase.
- Employment proof: Most banks have listed companies. But, even then, the banks will call your employer to verify that you are employed in that particular company.
- Identity proof: The lender will want to see your driver’s license, passport, Emirates ID, Visa, etc.
When you have a pre-approval for a home loan, it makes it easier to look for a place. As you already know what your budget is.
Also Read: Home Loan mistakes to avoid when applying
Why take a pre-approval for home loans?
The following are the reasons why you must get a pre-approval:
- If you have a pre-approval, the brokers will take you seriously and will be in a position to show you the best places you can afford to buy in your budget.
- You will be in a better negotiating position.
- Even though you set a budget for yourself, it is important to know how much the bank is willing to lend you. Sometimes, your budget might’ve been lower than the amount the bank is willing to lend you. If that is the case, you can buy a bigger home.
- When you are getting a pre-approval, the banks determine the highest possible loan amount that you are eligible for based on your paying capacity. The paying capacity includes your income and other liabilities.
You can choose the bank you want to opt for based on the rates, fees, and other conditions, you must obtain a pre-approval from them.
Things you must know about pre-approval letter
The following are the things that you must be aware of:
- The banks will charge anywhere around AED1,000 – AED2,000 to issue a pre-approval letter.
- Most banks will include the total processing fee, but the pre-approval fee will be forfeited if you do not take a loan from that bank.
- The pre-approval letter is valid for 60 days from the date of issuance.
- Pre-approval letter does not guarantee the final home loan approval. The final approval is based on successful valuation.
What to do if the valuation figure is lower than the price agreed with the seller?
If the price you have agreed to pay the seller is higher than the valuation figure, you can do the following:
- You can opt to pay the balance amount in cash out of your own pockets.
- You can cancel the purchase agreement, if it states that the deal is subject to full and successful valuation to the price that was mutually agreed upon.
If you find the process overwhelming, you can at any time enlist to the services of a mortgage broker. All the process of pre-approval, purchase agreement, final valuation, etc. will be taken care by the broker. But, you will have to pay the broker a certain fee for his or her services even if you end up buying a home or not.
Related Read: Factors to consider when going for a home mortgage