A home loan pre-approval is written assurance from a lender that you’re able to borrow money to purchase a home up to a certain amount.
1. Know how much you can afford
Getting pre-approved and knowing the maximum loan amount you can borrow gives you a budget to work within. Knowing how much you can afford narrows down the options and makes the selection process more efficient. It also protects you from the unpleasant surprise of realizing the home you fell in love with doesn’t fit your budget.
2. Strengthen your offer
In a competitive market where homes attract more than one offer, having a written pre-approval will put you in a stronger position. If the sellers are weighing one offer against another, they may lean towards the one accompanied by a pre-approval letter. That’s because pre-approvals instil confidence that the buyer is financially capable of purchasing their home.
3. Negotiating power
Getting pre-approved may give you the upper hand when negotiating the price. If the owner is eager to sell and wants assurance a deal won’t fall through, they may be more willing to accept a lower offer from someone who is financially capable of purchasing their home.
4. Get taken more seriously
Both buyers and sellers agents are time poor they may be reluctant to hold a private viewing or put in the extra effort to close a deal if they are not confident that the deal won’t fall through. Having a pre-approval signals to the agents that you’re organised and mean business. This will greatly increase your chances of getting through the door.
5. Essential when buying at auction
Funding should never be left to chance if you are bidding at auction, once the hammer falls there is no cooling off period, if you’re the highest bidder you are committed to the purchase, you must be ready to pay your deposit, exchange contracts and complete the purchase. If the deal falls through, you will lose your deposit and may be liable for any damages suffered by the vendor.
6. Save time
Getting pre-approved ahead of time will shorten the full loan application process once your offer has been accepted. If the settlement timeframe is tight, or if the property is sold under Auction conditions – this time saving can be crucial.
Things to Consider:
- Pre-approvals are usually valid for 3 – 6 Months depending on the lender, can be renewed/extended if finding a property is taking longer than expected.
- You will need to submit a full loan application, providing financial evidence for assessment in order to get a reliable pre-approval, be cautious of quick online assessments as any approval you get may not accurately reflect what the bank will actually lend you.
- If your financial or personal situation changes after you have been approved, your application will need to be reassessed. Examples include:
- Job Change
- Taking out a personal loan or credit card
- Have children
- Spend your deposit funds on an unforeseen expense
- A change in interest rates will affect your overall borrowing power, for instance, if the RBA raises interest rates and the bank follows the amount you are able to borrow may decrease.
- As the property hasn’t been found yet, it is not included as part of the pre-approval assessment this is why pre-approvals are conditional based on a satisfactory valuation of property. Be aware that the bank valuation may affect your ability to purchase the property, in the case where your offer is above the bank valuation amount you may not have sufficient funds to complete the purchase and the deal may fall through. Be aware that not all properties are acceptable as security by all lenders, such as:
- Certain suburbs
- Run down properties
- Hobby farms
- Small apartment
- Service apartments
- Pre-approval can affect your credit score, you need to be wary of how many lenders you apply for, as every time you submit an application the lender will run a credit check and leave an enquiry on your file. Multiple enquiries can affect your credit score negatively. Getting guidance from a qualified lending consultant is advisable as they can narrow down the lenders to suit your needs.
To secure your pre-approval, contact our Lending Consultant Bogdan Bunculet on 08 9383 8300 or email him on firstname.lastname@example.org to arrange an appointment.