A pre-approval is an essential step of the home loan process. If you’re in the market for a property and want to confidently bid at auctions and make offers on a property, you need a home loan pre-approval.
What is a home loan pre-approval?
Sometimes referred to as an approval in principle or conditional approval, a loan pre-approval simply indicates how much a lender is willing to loan you based on your unique scenario. When pre-approving a loan, a lender will not only evaluate your current financial situation but will also take into consideration the property purchase price, the loan and deposit amount, and all costs associated with the purchase.
What are the benefits of getting a loan pre-approval?
There are several different benefits to getting a home loan pre-approval before starting your search, the biggest being the assurance that you’re likely to be approved for a loan.
Here are some of the other perks:
- A pre-approval loan can give you the confidence to focus on properties that you can afford.
- Most lenders won’t charge you for pre-approval.
- You can attend auctions and make offers on properties knowing that you’re likely able to secure the finance if they accept your bid.
- Vendors and agents will generally favour buyers who can prove their finances and show that they’re in a position to settle on the loan quicker.
How do you apply for a pre-approval?
The first step is to decide on a lender. Working with a mortgage broker can make that part of the process a lot easier as brokers usually work with multiple lenders and can suggest lenders that better suit you and your circumstances.
The second step is to complete an application. These days, most applications can be completed online and generally include listing your income, expenses, assets and debts.
The third and last step is to provide documentation to back up the information provided. The documentation required will usually include ID documents, income documents such as payslips and tax returns, statements for all your existing liabilities such as credit cards and proof of funds.
How long does a pre-approval last?
A home loan pre-approval will generally last between 3-6 months, depending on the lender. You should consider this when applying for a pre-approval. If you’re not planning on buying within the next 90 days, we recommend you wait.
Does a pre-approval guarantee a loan?
In short, no. Pre-approvals are only an indication that your application fits the lender’s criteria. There are a few reasons your loan application might be rejected, even after being pre-approved:
- Changes to your personal or financial circumstances
- A negative valuation of the property
- Changes in interest rates
How long does it take to get a pre-approval?
It can take up to 3 weeks to get pre-approved, depending on your lender.
What happens after my pre-approval?
Now the fun part starts! You can begin your property hunt, bid on that dream house, and confidently make offers on a property.
If your bid is successful or your offer is accepted, you’ll then need to gain full approval from your lender.
What happens after my pre-approval expires?
If it takes you a little longer to find the right property, you can extend your pre-approval for no extra cost.
Keep in mind that every time you extend a pre-approval, a new inquiry is added to your credit file. Several enquiries on your credit file can negatively impact your credit score.
If you’re looking at getting a home loan, we can help you find the right one. Talk to a UFinancial broker today.