There’s no need to wait until you’ve found the right property to apply for your home loan. In fact, there are good reasons why you should get a home loan pre-approval before you begin home hunting.
Amid the excitement of buying a home, it can be easy to overlook the option of having your finance pre-approved. But it’s a step that can make life a whole lot easier.
How home loan pre-approval works
If you’re not familiar with home loan pre-approval, it simply means receiving conditional approval from a lender for the amount you’d like to borrow – which you can get before you’ve even found your ideal property.
Loan pre-approval is something your Aussie Broker can help you with, but first let’s take a look at why it might be worth organising finance before you track down your dream piece of real estate.
Focus on homes you can afford
One of the biggest advantages of home loan pre-approval is that it provides a clear amount for how much you can afford to spend for your property. This can help to narrow down your search, and avoid wasting time (or money spent on pre-purchase inspections) on homes that are beyond your buying budget.
And, when you do find a place you’d like to buy, having finance pre-approved leaves you free to focus on price negotiations, rather than juggling the stress of arranging a mortgage at the same time.
Avoid being a victim of gazumping
With your home loan pre-approved, you’ll be in a position to act quickly, and that can be a plus in a competitive market.
Importantly, home loan pre-approval may help you avoid the distress of being gazumped. This occurs when a vendor decides to sell to someone else, usually for a higher amount, even though you may have reached a verbal agreement to buy the property.
In some cases, the vendor of a property may even be willing to accept an offer below list price and take the property off the market, if they are confident that you are a serious buyer.
Home loan pre-approval is especially useful at auctions
It’s when you’re buying at auction that home loan pre-approval can be especially useful. It lets you bid with certainty and avoid the risk of being the highest bidder on a place you can’t afford.
While auction rules differ between states, there is usually no cooling off period at auction, and if you’re the winning bidder, you could face serious fallout if you can’t settle the sale. You may for instance be forced to pay the cost of re-auctioning the property or stump up any shortfall between your offer and the winning bid at the next auction. Faced with these possible consequences, it makes arranging home loan pre-approval a very sensible strategy.
While many lenders offer pre-approval, some don’t. Your Aussie Broker can take the guesswork out of the process, letting you know which lender offers the loan that suits your needs, coupled with options for pre-approval.
Note too, pre-approval doesn’t extend indefinitely – it’s usually good for a set period, often around six months.
In addition, during the pre-approval process the lender will consider your credit history, and whether you can comfortably handle the loan based your current financial situation. This being the case, pre-approval hinges on your circumstances remaining the same. A major life change like resigning from your job to start a new business with uncertain income, could see you knocked back for full approval later on.
Be aware too, if the lender’s valuation comes in at well below the price you’ve agreed to pay for the property, your final loan application could be rejected.
Pre-approval costs nothing
On the plus side, it shouldn’t cost anything to organise home loan pre-approval. Any fees associated with your loan are typically paid when your mortgage settles.
With no impact on your immediate budget, but tonnes of certainty and peace of mind for the buying process, it’s worth speaking with your Aussie Broker to know if home loan pre-approval is the right choice for you.
You may also be interested in Loan pre-approval – how it works, 5 things you should know about loan pre-approval and Tackle the challenges of getting into the property market with the help of an Aussie broker.