Home loan pre-approval and why it’s an important first step
Pre-approval is a lender’s assessment of your likelihood of being approved for an otherwise suitable loan. The appraisal is made on the basis of your ability to service a loan. This is achieved by looking into your living expenses and liabilities, your credit history, your employment circumstances and how often you have moved home or employment in the recent past.
When should you get a pre-approval?
Pre-approvals are performed prior to a property being found and chosen. As such, it does not take into account the particulars of a specific property and valuation. In these instances, uncertainties can arise.
Pre-approval is helpful for those who want to know how much they can borrow before attending open homes, and can be reassuring for new borrowers. Most industry experts would highly recommend that buyers have a pre-approval in place prior to their property hunting journey.
“When someone gets pre-approval they can start looking at properties knowing how much they can borrow. They know what their price range is,” explains the finance broker Chris Sales. “People take comfort in knowing that a lender has looked at their application to make sure it meets policy.”
How long does a pre-approval last?
Generally, pre-approvals are usually valid for up to 90 days but, depending on the lender, may be renewed to allow more time to find a property.
It is very important to note that a pre-approval is not a guaranteed loan. It is your potential lender’s way of signalling how much they expect to lend you. This may change on your official application.
Pre-approval is no guarantee
“Policies are changing day-to-day, week-to-week at the moment,” the broker says. “For anybody with a conditional approval, it’s a good idea to speak to their broker to find out if any policies have changed.”
Another thing that may cause a lender to decline your loan application after pre-approval is a change to your pre-approval circumstances.
“We need to make sure the applicant has not gone and got another credit card or car lease, or any other debt that may affect their income and serviceability,” the broker says.
Your pre-approval will also usually be conditional on a property valuation. If your lender does not deem the property a marketable asset, they may not approve a loan.
“We want to check that it is a readily saleable property. That’s the biggest thing. To make sure the actual security itself is acceptable,” says the broker.
Potential lenders need to be wary of the changes that can affect their ability to take out a loan, regardless of pre-approval figures, to ensure they don’t overcommit without a guaranteed source of funding.
Pre-approval is not a guarantee, but is a very useful tool for anyone looking for a property. Before you lock in your Saturday open home schedule find an expert to help you get started with your home loan.Get started now