Do you need pre-approval?

Monday 28 March, 2022

What is pre-approval?

When looking to purchase your dream home, pre-approval can be one way to ensure you don’t miss out. Pre-approval also known as indicative approval, approval-in-principle, or conditional approval and can help you be prepared when you find your perfect property. While pre-approval does not guarantee that your mortgage will be approved, it gives you a realistic indication of how much you can afford to borrow based on your current financial position and allows a lesser length finance clause as most of the work is done.

Do I need to be pre-approved for a loan before looking for my dream home?

The short answer to this commonly asked question is ‘no’. Pre-approval does not guarantee that you will be approved for a loan. What pre-approval does, is gives you a realistic idea of what you can afford, meaning you can focus your search on the right price range. It shows Agents and Vendors that you are serious in your home loan search which, in the current market, may put you in front of other potential buyers.

Not every pre-approval is the same!

You need to be aware that there are different types of pre-approvals out there.

Some lenders will complete a full assessment which will include:

  • obtaining a credit check
  • verifying your income
  • looking at your living expenses
  • finding out information on your existing loans including personal loans, credit cards, ‘buy now, pay later’ accounts
  • looking at your savings history and the amount of your deposit

Once you have received this type of pre-approval from the lender, you can be confident in how much you can borrow and providing your financial decision doesn’t change, you are likely to meet the lender’s eligibility requirements. Don’t apply too early though as most full assessment pre-approvals have a 90-day approval period.

In many cases we can re-apply to the same Lender to extend your current pre-approval and provide updated information such as payslips and proof of savings.

While a full assessment is the best indication that your loan will be approved, never sign an unconditional contract! You will need to make sure that your dream home meets the lender’s criteria and valuation before you sign on the dotted line.

You may have seen websites claim things like ‘find out if you qualify for a home loan in 2 minutes!’ or ‘apply and have a result within 30 minutes!’ You will provide some general information usually through an online form and receive information on how much you can borrow. This is known as a system-generated pre-approval. As the name suggests, it is a system-generated decision based on the minimal information you have provided. The lender has not completed an assessment of your financial position and, as you can imagine, pre-approval in this instance is very conditional and is effectively valueless.

Remember, regardless of the type of pre-approval you have received, it is not a guarantee that your loan will be approved when a full application is completed so, consider this carefully before signing a contract on that dream home. We highly recommend you always include a 14-day finance clause for pre-approved home loan purchases.

Which lender is right for me?

This is where we shine! With our industry experience, we can find you the right lender to meet your needs. We will make sure that you receive a full assessment pre-approval so you can be confident in the search for the home of your dreams.

And don’t worry, when you have found your dream home, we will make sure that you are getting the best deal to meet your needs. There is no obligation for you to go with the lender who gave you pre-approval.

Still not sure or have more questions? You know what to do, give us a call on 6334 0883 or complete your contact details below.

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