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.
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 I 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.
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?
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.
Can My Pre-Approval Be Rejected?
A pre-approval may not always be reliable. Although you have obtained a pre-approval, your loan application may still be declined if:
- The pre-approval was worthless: A system-generated approval or an on-the-spot approval may not follow the lender’s policy. Thus, loans may still be declined because the potential borrower may never have met the lender’s requirements in the first place.
- The Lenders Mortgage Insurance (LMI) provider declines your home loan: Lenders may require approval from the LMI provider if your loan amount is more than 80% of the property value. The LMI provider may have different guidelines to the lender and may decline your home loan.
- The security property is unacceptable: If the property that you are buying does not meet the lender’s requirements, then it is possible the lender will decline your loan when you apply for formal approval. Typically, lenders won’t approve loans for properties such as inner-city apartments, hobby farms or units under 50 square metres.
- The pre-approval has expired: Depending on the lender, a pre-approval may last for up to three months. If you take longer than this to find a property, then your pre-approval may no longer be valid.
- Your situation has changed: Lenders may reassess your loan application if your situation has changed since your loan was pre-approved. This may apply if you have changed jobs, or taken out a car loan, or a credit card. If you are no longer able to satisfy the lending criteria after the reassessment, then your loan may be declined.
- The lender’s policy has changed: Many lenders change their lending policies regularly. Some lenders may agree to move forward with the pre-approvals that are lodged before the policy change. Others may only formally approve your loan if it meets their new lending policies.
- Interest rates have increased: If interest rates increase, it will result in a decrease in the maximum amount you can borrow; therefore, if you have applied for the maximum loan amount possible in the pre-approval, then formal approval for that amount may be declined.
Lenders may not notify you that your pre-approval has outlasted its validity. Check with the lender before applying for formal approval.