Don’t miss out on the property of your dreams!
Without getting a pre-approval from the bank first, you can easily miss out on securing a home.
Stories of heartbreak are common at auctions, where the buyer puts down a deposit after winning but then wastes precious time applying for a mortgage that may be declined.
So what is a pre-approval and how can it give you peace of mind when entering into a deal with the seller (vendor)?
- Your loan has been pre-assessed by a bank.
- The pre-approval is valid for 3 months. Depending on the lender, a valid pre-approval of 110 days is also available.
- You know your maximum purchase price.
- You know that your personal situation meets their lending criteria.
- The bank hasn’t yet confirmed that they’ll accept your property as security.
- The pre-approval may be subject to you meeting particular conditions.
- Not all pre-approvals can be relied upon.
Banks and lenders offer a number of different types of pre-approvals.
They range from a simple 2-minute online application, to a formal document, written and signed by you and the bank.
If you need a home loan pre-approval, we can help.
Contact us on 1300 889 743 or enquire online and one of our mortgage brokers will call you back.
Pre-approval during COVID-19
Due to the pandemic, lenders will ask you these questions when you’re getting pre-approved for a home loan:
- Is your income affected by COVID-19?
- Has your employment been affected by COVID-19?
- Do you work in a high-risk industry (aviation, tourism, arts & recreation, etc)
- Has your variable income (bonus, commission, regular overtime) been affected by COVID-19?
- Has your employer given you assurances of your job security?
- Has your employer hinted at any changes regarding your working hours, income and job security?
- If your income is reduced, what plans do you have for any loan repayment shortfall?
- How will you repay the home loan?
- Do you know the risk of defaulting on your home loan?
- Are you currently receiving JobKeeper payments? Will you be using this income during home loan application?
- Have you changed your jobs in the last 3 to 6 months?
Can I extend my pre-approval?
If you have a 3 months pre-approval, it can be extended up to 6 months.
If your income has been affected by COVID-19, you might not be able to get the pre-approval extended for the same amount.
Different lenders will ask you for different documents. A few mandatory ones are:
- Your 2 most recent payslips
- Your most recent salary credit statement
- Any information regarding changes in assets and liabilities position since pre-approval.
Why should you secure a formal pre-approval?
Securing a formal pre-approval is the only way to make sure you can negotiate confidently with vendors, whether it’s at an auction or not.
By getting a formal pre-approval, you can dive into property hunting, knowing how much you can borrow. You might even come across as a prepared and serious buyer to the seller.
Ironically, a pre-approval isn’t necessarily a guarantee of getting approved, and you could get declined because:
- The lender could have updated their policies.
- You had an “on spot approval” process that was system generated. here are a number of banks and lenders who tend to be unreliable.
- The LMI provider declined your application.
- You’re buying a property that is not acceptable to the lender.
- The pre-approval period has expired.
- Your situation changed i.e. change in job, you got a car loan, applied for a credit card since you were pre-approved. The lender will re-assess your application.
What does the approval process involve?
- Complete and sign our short application form.
- Provide evidence of your income, savings, and debts such as credit cards and other loans.
- We’ll complete a preliminary assessment and recommend several suitable lenders and loans.
- We’ll lodge your application with the lender that you’ve chosen.
- The lender will complete an assessment of your situation and provide their pre-approval.
As a mortgage broker, we can apply to more than one bank and lender and we know their pre-approval policies.
Our brokers will know which banks and lenders actually assess the home loan application before they give you a pre-approval letter.
Our page on preparing to apply for a home loan will help you increase your chances of mortgage pre-approval.
What should I do once I’ve submitted my application?
Once you’ve submitted your home loan application, you should make sure it has adhered to bank policy.
To do this you can ask your mortgage broker or the lender:
- Did the credit department accept my application?
- Has the lenders mortgage insurer (for Lenders Mortgage Insurance or LMI) approved my application?
- What are the conditions of approval?
- Can I satisfy the conditions before I make an offer on a property or when going to auction?
- Can I bid at auction in the knowledge my loan will be approved?
Please be aware that interest rates and lending policies are subject to change.
If they do, even a formal pre-approval may no longer be vaild.
Be sure of current rates and policies before going to auction, preferably the same day or as close as possible.
The lenders will most likely not notify you of this unless you ask.
To find out more about this, see our page on bank policy and lender guidelines or contact us here at Home Loan Experts.
You may enquire online or call and speak with one of our specialist brokers on 1300 889 743.
How can it help me?
If you know approximately how much you can borrow, you can make sure you look within an affordable price range.
Once you’ve found the right home, you can go ahead and make an offer or go to auction.
You can be confident that you have the money to purchase.
Furthermore, the closing period of your loan is shorter as you don’t have to wait for the bank to go through the entire loan application process.
This not only means you can close on the property sooner but that the vendors are more likely to say yes.
This is because you’re more likely to obtain finance quickly and the purchase process will be smoother.
What makes a good pre-approval?
For a reliable pre-approval, you need it to be formal, written and signed by the bank or lender.
The lender will have assessed your loan application and checked off as many of the banks loan conditions as possible.
The more conditions for your pre-approval, the more the bank has to check.
They won’t approve your loan until they have done these checks!
You should make sure:
- The bank or lender accepted your loan application after assessing your financial situation. This is important!
- There are less conditions to check off on your pre-approval. If there are things the bank has yet to confirm, ask them to confirm them first!
- The pre-approval is for more than you intend to spend on a property. This means you don’t have to apply for a new pre-approval if you decide to increase your budget.
What should I avoid?
Avoid non-formal, non-written applications.
This includes fast “30 minutes-or-less” online applications or applications over-the-phone.
These have far less guarantees and will come with many conditions that you must fulfill at a later date.
Generally, these are used by the banks and lenders to produce sales not to offer reliable pre-approvals.
Avoid lenders that won’t assess your loan application in the pre-approval process.
There are some lenders who generate a system generated pre-approval, which is generated directly after submitting an application. This is done without bank assessment and it is not reliable.
Don’t forget, unless the lender gives you an unconditional approval, they are still under no obligation to loan you money.
Conditional approval vs final approval: what’s the difference?
Unlike a conditional approval, a final or unconditional approval is given once all the banks loan conditions have been met.
This is the final guarantee that you’ll receive finance for a property.
A bank will only decline a final approval if they find a discrepancy that has been completely missed or they have reason to suspect something like fraud.
Once you’ve won at auction or your offer has been accepted by private sellers, you may have a one to three week grace period to get your finances and deposit in order.
During this time, you can check with your lender and make sure they will honour the agreement.
Even if you don’t have this grace period, contact the bank and make sure they are still financing your loan.
If you haven’t already done so, you can ask for your final approval at this time.
How can I get pre-approval?
If you’re in the market for a home or investment property and would like to know more about home loan pre-approvals, talk to us.
Our brokers are specialists in bank lending policies and know how each bank treats different loan applications.
You can enquire online or call us on 1300 889 743.