Five good reasons to consider loan pre-approval
While searching for a new home can be a little stressful and at times confusing, one way to search with more confidence is to obtain pre-approval for your finance.
Obtaining pre-approval for your loan will mean you can search with more clarity and are more likely to be able to secure the house you want.
Here are 5 reasons to consider loan pre-approval before you start house hunting:
1. You have a clear spending limit.
A home loan pre-approval tells you how much you can borrow so you can shop for properties within your price range without wasting your time looking at properties you cannot afford.
2. A financial safeguard
You are less likely to make an offer or pay a deposit on a property only to discover you are unable to secure the finance to complete the purchase.
3. Extra negotiating power
With your loan pre-approved, real estate agents can see you are a serious buyer and are in a position to act quickly. This can give you the edge when it comes to price negotiations with vendors.
4. Bid with confidence at auction
Pre-approval is a must-have if you are buying at an auction. When the hammer falls, the highest bidder is committed to the purchase – there is no cooling-off period. Having loan pre-approval in place means you can bid with confidence up to your indicated loan limit.
5. It costs nothing
Arranging loan pre-approval won’t add to your purchase budget. There is no cost because the lender’s normal loan application and establishment fees don’t apply until you are formally approved for a loan.
Loan pre-approval is obligation-free. You are free to select a different loan and lender if you find there is another lender on the market offering a better product with superior features or a cheaper interest rate.
What to be aware of:
1. Check if pre-approval is available
Not every lender offers pre-approval, as a mortgage broker, I check this before making any recommendation.
2. Watch the time span
A loan pre-approval is typically only valid for 90 days. This is because your personal
circumstances, and even the property market, can change quickly. If you haven’t found your preferred property within the timeframe of your loan pre-approval, you can simply apply again by providing updated personal details.
3. Your circumstances or the market may change
Pre-approval is offered on the information you provide at the time of application, as well as the
prevailing market conditions and average interest rates. If your circumstances change following
pre-approval, you may no longer be eligible for the same level of loan funding.
4. Pre-approval is not a guarantee of funding
Keep in mind that home loan pre-approval is not a guarantee of receiving a home loan. The property
you’re hoping to buy will act as security for your loan, so formal approval can only be granted once you have chosen the property that is right for you, so the banks will need a valuation. Furthermore, banks can still decline an application for a range of reasons.
There are also differences in how lenders assess a pre-approval. Some lenders are as careful with a
pre-approval as they are with an application, and require all the same documents and verification as the application itself. All they are likely to ask for after you have made an offer or bid at an auction is a copy of the contract of sale and a valuation. These are the most robust and unlikely to have the application denied.
Other lenders are a bit more ‘free-wheeling’ and do not do a full examination of your application prior to pre-approval. These lenders are more likely to deny an application or reduce the funds they will lend. There are a small handful of lenders who do not offer pre-approval at all.
If you want to get started with your pre-approval, you can complete our 5 minute form here: https://bit.ly/43VqyrH
Call on: 0418 552 938
Email at: peter.jefferson@mortgagechoice.com.au, or
Book a time to chat: https://bit.ly/43WsXma
If you’re a first home buyer, I’ve also created a useful guide to help you understand other key aspects of buying your first home.