Getting a loan pre-approval is a smart idea, but there are a few things you should know.
Unless you keep gold bullion under your bed, you probably need to borrow money to buy your next property. How much can you spend? Enter the loan pre-approval.
A pre-approval is a conditional lending document that is a must for prospective property buyers, says Aussie’s general manager of strategy and products, David Smith. “It gives you confidence around the question of ‘how much can I afford to borrow?’” Smith says. “It’s done, it’s dusted and you can get on with finding the right property.”
Sounds good doesn’t it? Here are five more facts about pre-approvals you really need to know.
1. Pre-approvals help get things underway
If you have pre-approval it means your lender has assessed your ability to pay future borrowings up to an agreed amount. Remember that your approval is still conditional until you’ve found a suitable property – generally, you have 90 days – and the bank has completed its formal approval process, including a valuation.
2. Pre-approvals can speed things up
If you’ve got pre-approval before you go home shopping, moving to unconditional status should be quicker before settlement. “It can make the process quicker and less stressful when you do finally find somewhere you want to buy,” David said.
3. Many names, same thing
Securing pre-approved home loan funds can seem overwhelming, the finance editor of onthehouse.com.au and author of The Great Australian Dream – how to buy your first home, Peter Boehm says. “You will hear a lot of terms being bandied around – pre-approvals, conditional approvals, approvals in principle – but they are actually all the same thing,” Boehm explains.
“Indicative” borrowing figures generated by online calculators are not mortgage pre-approvals and should be used as guides only.
4. Pre-approvals help you ‘keep it real’
One of the best things about gaining pre-approval is that you know if a property is in your price range. “It really helps you with budgeting and helps you set realistic expectations around what you can afford to buy, which is particularly valuable for first-home buyers,” Smith says.
5. Less is more – apply wisely
Every time you submit a pre-approval application, it will appear on your credit history as an “enquiry”, Boehm says. “Lenders will start to ask questions if there are too many in quick succession.”
This is why your broker will help you select a suitable lender for your individual circumstances and goals, then guide you through the process one application at a time.
Did you get pre-approval before searching for your property? How did it help you to sharpen your focus? Tell us in the comments below.