What is pre-approval?

For those getting ready to stride into the world of home ownership, the uncertainties of pre-approval can cast a shadow of doubt over an otherwise exciting time. When is it necessary? How long does it last? And what does it involve, exactly?

Pre-approval is a lender’s assessment of your likelihood of being approved for an suitable loan. The appraisal is made on the basis of your ability to repay the loan 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.

As it is performed prior to a property being found and chosen, it does not take into account the particulars of a specific property and valuation, which is why 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.

Once you have pre-approval, it provides a very clear limit on your borrowing capacity. This ensures you can budget properly and saves you wasting time looking at properties that are out of reach.

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. This is done by re-confirming your financial situation via pay slips and updated savings balances.

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.

Lender policies are changing day-to-day so for anybody with a conditional approval, it is important to have an attentive broker who can update them on any changes that may affect their lending situation.

Changes to your financial situation between getting pre-approval and buying a property can also influence the likelihood of the lender to provide final approval. If you go and add debts to your name like credit cards or car loans this will negatively impact your capacity to borrow.

Pre-approval is not a guarantee but is a very useful tool for anyone looking for a property. Just like my last blog, pre-approval needs to be done before you start looking for a property.


Chicken or the egg? Property or the finance?

It’s easy to get carried away with the fun part of buying a property – looking at houses – but delaying the less compelling task of arranging finance will weaken your negotiating position on both the property and the loan.

Looking for a property to purchase is an exciting time. Choices regarding location, size, number of rooms and local amenities often see house hunters carried away in a deluge of daydreams and anticipation.

But, before you get carried away, it’s important to check off the essentials first. Although organising your finances may seem drab in comparison to perusing sales listings, gaining pre-approval with a lender will give you confidence about how much you can afford to borrow.

First and foremost you need to determine if you’re eligible to borrow money from a lender. Apart from showing you have the ability to repay the loan, lenders will also assess a range of other hurdles for you to overcome like credit scoring. You don’t what to find out after you’ve made an offer that your credit history or deposit is not up to scratch.

Arranging finance before finding the perfect property will put you in a good position when it comes time to make an offer. When you do find the house you have always wanted, you can present to the seller and estate agent as a prepared applicant who is serious and reliable.

Sellers are most interested in completing their sale fuss-free and with steadfast funding, and showing that you are capable of both will help put you at the top of a potentially competitive list of applicants. This is especially important in the off-the-plan market.

In the instance that you find and secure purchase of a home without having your loan pre-approved by a lender, there are a few pitfalls that you risk running into. Should you not be able to secure finance for the property, you may have to forfeit your initial 10 per cent non-refundable deposit.

Arranging your home loan at the last minute also leaves less time to find the most suitable loan and have it approved ahead of settlement. Any lender that has a special rate or product on offer will most likely have a longer turn around time than their competitors and as such you may not be able to obtain these products.

Unlike the Chicken Vs Egg debate, this one is simple. Finance pre-approval certainly comes before the Property.

Seven keys to winning at auction

The majority of Melbourne property is sold at auction. To be successful you will need to be armed with as much information as possible. The below sets out my 7 key steps that will put you in a strong position come auction day.

1. Bring In The Professionals
Property is most likely your biggest financial commitment you will ever make. Do all that is required to ensure you don’t run into avoidable hazards. When you are super keen on a property, get a building inspection and engage a solicitor to review the contract of sale and provide advice around how to sign the contract correctly.

2. Obtain Pre-Approval
It is scary to think that people go and purchase a property without formal pre-approval from a lender. This is a MUST as there is never a guarantee that you will be eligible for a home loan.

3. Understand Auction Rules
Some auctions will require you to register to bid. Ensure you ask the Agent well before auction day if there is anything you need to know about the auction process.

4. Do The Research
The last thing anyone wants is to be successful at auction only to find out they have overpaid. You need to critically analyse the property and its surrounds in an unemotional business-like manner. Good mortgage brokers will have access to property reports showing similar sales in the area and may know of any future developments that will add or detract value from the property you’re keen on.

5. Know Your Limits
Pre-approval will give you a maximum purchase price, however that doesn’t mean that every property you look at will be worth the same. Place a maximum value on the property you’re bidding on and stick to it. Auctions are so popular with vendors as the hype can attract foolish bids… don’t let it be you!

6. Auction Day Tips
Auctions are a show, so you have to perform. Here are some ideas to try and spook other bidders on the day:

  • Have direct line of sight to other bidders and the auctioneer. Try and stand near the front. Don’t lean on cars / fences. Look like your there to buy and nothing will hold you back
  • Bid confidently and loudly. You want to appear to have bottomless pockets. Always counter a bid against you quickly. As long as the property is below your limit, you should act like you have no limit
  • If you are a younger buyer, ask an older family member or friend to bid on your behalf. They can make it look like it’s their 10th investment property and that price isn’t an issue
  • Dress nicely
  • Don’t seek guidance from your support crew during the auction, it shows you are a novice

7. Get Used To Auctions
You should attend auctions in the area you are keen to buy in to scope out the bidders and the way the auctions work. You wouldn’t play a grand final without going to training a few times, so why should spending half a million plus be any different. Try and pick up on any tactics that seem to work and take notes… one day it will be your turn to shine!