Why it's a good idea to get a pre-approval
Written by: Maria Papa
Published 14 August 2020
You may have heard it’s important to get a home loan pre-approval. But why do you need it?
Pre-approval confirms you’re eligible to apply for a home loan up to a certain amount. Essentially, the lender checks your financial circumstances to decide if you’ll meet their criteria and can afford to repay a mortgage. It is also a recommended first step to your property search because of the numerous benefits it can give you.
Benefits of a home loan pre-approval
1. Confirm your borrowing power
Before you start searching for a property, it’s important to confirm your borrowing capacity. Online calculators can give you a general indication of what you might be able to borrow given your income and savings. But they don’t confirm what size repayment you’ll be able to make after you meet your other living expenses and financial commitments.
With a loan pre-approval, you’ll know exactly how much you can borrow and the kind and price of properties you can afford. It gives you a solid understanding of your finances and a clear spending limit. Getting pre-approved through a reliable broker can also help identify possible issues that you may not be aware of, as well as spot something that may have been overlooked.
2. Save time on the property search
Imagine spending a lot of time looking for your dream home, only to be rejected because you can’t secure finance. Getting a pre-approval will confirm how much you can borrow and help you save time, avoid wasted effort looking at properties you can’t afford, and prevent disappointment.
3. It gives you a competitive advantage
In a competitive property market, it’s important to move fast. Sought-after properties sell fast and having a pre-approval allows you to make an offer as soon as possible. Pre-approval gives you the ability to make an offer on a property on the spot, with the confidence of knowing you’ll be able to get the finance organised quickly. It also signifies to vendors that you are the real deal. If you are bidding at an auction, a pre-approval also helps you negotiate from a position of strength.
4. It protects your deposit
Before you hand over your deposit money, it pays to make sure you can get the home loan you need to complete the purchase. If there is some issue with your eligibility or a lender won’t approve the amount you need, you could potentially lose your hard-earned deposit.
Pre-approval gives you an important financial safeguard. And if you’re buying at an auction, pre-approval is particularly important because your deposit is non-refundable. Once the hammer goes down and you’ve made the highest bid, you’ll be locked into the purchase. For that reason, we recommend you make sure your finance approval is rock solid first.
5. The property must get evaluated
Once you find the right property, you’ll still need to make a formal loan application to the lender. As part of this process, the lender will require a valuation of the property you select. Aside from confirming a budget for a home loan, it is also important to confirm if the loan will be approved by the lender for the property you chose. This is an important step as there are some properties that may not be acceptable to some lenders for the following reasons: if it is remotely located, its value is not enough to back the amount of the loan, or the location is ”risky”, among other concerns.
Apply for a loan pre-approval today
If you’re ready to start your search for a new home or investment property, get in touch with us today so we can arrange your pre-approval. We will help you understand the process, which will allow you to shop around for your dream property with confidence.
Originally published January 08, 2020 8:00:00 AM