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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.



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