The Advantages of Applying for Pre-Approval

What is pre-approval?

When looking to purchase your dream home, applying for a pre-approval loan can be one way to show vendors and agents that you are serious in your search. Also known as indicative approval, approval-in-principle, or conditional approval, a lender will assess your financial situation and extend you an offer of a loan subject to certain conditions.

While this conditional approval does not ultimately guarantee that your mortgage will be approved, it gives you a realistic indication of your borrowing power and the price range to focus your search.

Do I need pre-approval before I start looking for my home?

The short answer to this commonly asked question is ‘no’. As mentioned above, having pre-approval does not mean that your final application will be approved, however, there are some advantages that you should consider:

• You clearly know your budget

If your loan is pre-approved, you will know your borrowing capacity. That means when searching online for a property, you know your budget and what is within reach. This saves you time, so you don’t spend hours searching and attending open homes for properties that are not in your price range. You will also know your repayment amount so you can start factoring this into your budget.

• Faster closing period

You’ve found your dream home, you’ve negotiated your price and it has been accepted. By having your loan pre-approved, you will have already completed a huge step in the process as you have already done most of the hard work with your home loan application. At this stage you should never sign an unconditional contract! You will need to make sure that your dream home meets the lender’s criteria and valuation before you go unconditional.

• It proves you’re the real deal

Having a loan there ready to go is proof that you’re a serious buyer. When heading to open homes and chatting to agents, letting them know you already have conditional approval can 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.

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.

Things to Remember

• Don’t apply too early as most full assessment pre-approvals have a 90-day approval period. If you don't find a home in 90-days, don't worry, in many cases we can re-apply, to the same lender, to extend your approval by providing updated information such as payslips and proof of savings.
• Remember, you are not guaranteed final approval so, consider this carefully before signing a contract. We highly recommend you always include a 14-day finance clause for any home loan purchases.
• You are not obligated to go with the lender who gave you indicative approval. Once you have found the home of your dreams, we can consider the type of home loan that suits your individual needs.

Which lender is right for me?

This is where we shine! 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, with our industry experience, our mortgage brokers will make sure that you are getting the best deal to meet your needs.

Once you are ready to apply, we will discuss your short and long terms goals and find out what is important to you in a home loan. Whether you are looking for:

• a variable home loan which may gives you more flexibility to make additional repayments and the option for an offset account or redraw.
• a fixed rate loan which is more restrictive but gives you peace of mind when it comes to your monthly repayments
• or a split loan which is a combination of the two.

It doesn't stop there, at Finance Brokers Tasmania, we are happy to audit your loan every 18-24 months to ensure you’re still getting the best interest rates and value for money. Potentially reducing the loan term and saving you thousands .

Still not sure or have more questions?