The term ‘pre-approval’ is a commonly used phrase that circulates the lending world but what does it actually mean?
Pre-Approval is a term used when an application has been made to a lender and a loan amount has been approved in principle. This approval provides you with the confidence and knowledge of your maximum available funds when you search for your ideal property.
Having a pre-approval is not a requirement to bid or negotiate on a property however without one it places you at risk of overcommitting on a purchase price that is unrealistic. Additionally, not having a Pre-Approval can leave your property search unfocused, as you don’t know your buying limit. Having a pre-approval makes you look more attractive during a property negotiation as the seller has confidence your offer will not fall over due to financing.
How do I get Pre-Approved by a lender?
Applying for a pre-approval is a deep dive process by the banks to assess if you are suitable to their credit policy. In order to do this, a full Asset and Liability position along with supporting documentation will be needed. Once the lender’s assessment team have gone through your application, they will issue a pre-approval stating any terms and conditions.
The pre-approval will always be subject to a full valuation of the property you purchase. Your pre-approval typically lasts anywhere from 3-6 months depending on lender.
Does having a Pre-Approval mean I am guaranteed a loan?
No. A Pre-Approval is not a full or final approval. Once you have successfully purchased a property, a valuation on the property plus a review of your financial position will be undertaken to ensure there have been no significant changes since the initial Pre-Approval application. For example changing jobs, taking out additional credit (Car Loans, Credit Cards) or the birth of a child will alter key information that was used to issue the initial pre-approval.
How do I choose a bank to get Pre-Approval with?
Selecting a bank for your pre approval is dependent on a range of financial factors. Anything from your deposit amount, income level, existing debts and account needs can change the selection process. Seeing a mortgage broker allows you to shift through what is going to be most important for you and ultimately put together the strongest application possible for your pre-approval.