Loan pre-approval is a must have for home buyers. Here’s why.
Imagine being able to make an offer on a property or raise your hand at auction secure in the knowledge that you have funding lined up. That’s the idea behind home loan pre-approval, and it’s a key part of the getting your home-buying finances in order.
Be wary of quick ticks
The process of securing pre-approval, also known as ‘in principal approval’ or ‘conditional approval’, varies between lenders – indeed some lenders don’t offer it at all.
Moreover, the amount of detail you’re asked to provide and the time taken to issue pre-approval can reflect the likelihood of securing formal approval later on. Some lenders provide online approvals in just a few minutes. Be very wary of these as it’s highly likely your details haven’t made it to the lender’s credit assessment team.
Other lenders will want to see the full range of loan application documents like personal ID, proof of income, evidence of savings (like bank statements), and details of other debts – usually credit cards and personal loans. So it’s always worth having the necessary paperwork on hand as soon as you’re ready to start testing the water with lenders.
If your details stack up, be sure to ask for pre-approval in writing. In particular make note of how long the pre-approval is good for. It typically only lasts for three to six months. Your broker can offer valuable assistance here, providing key details about the pre-approval you’ve received including any steps you may need to take to get a green light on the loan further down the track.
Your property can seal the deal
Be aware, even at this stage a key piece of the jigsaw is missing, and that’s the property you plan to buy. Your choice of home will have a big impact on whether pre-approval translates to formal unconditional approval.
If your lender’s valuation indicates you’ve paid too much for the property your loan application may be rejected. Or, if there’s been a significant change in your personal circumstances like a new job you could be knocked back for formal approval. If market interest rates have changed since speaking with your lender, the amount you’re able to borrow could be reduced.
The good news is that pre-approval shouldn’t cost you anything – any loan fees are generally paid once your mortgage has settled. Note too, in the case of a private treaty sale (though not auction) it may be possible to make your offer ‘subject to finance’, which is a great way to cover all your bases with or without pre-approval. This is something worth discussing with your broker and solicitor.