If you’ve been looking at buying property, a pre-approval for the finance will help to make sure you don’t miss out on the property you want, when you’re ready to buy.
A pre-approval is essentially the lender confirming that you meet the criteria to borrow up to a certain amount, subject to valuation and possibly Lenders Mortgage Insurance approval.
It gets most of the paperwork out of the way, removes the uncertainty of whether you can afford the property or not, and allows you to get on with the most important part – finding the right property for you.
Some advantages of a pre-approval:
- There is no obligation to borrow the full amount you’re pre-approved for
- Pre-approval lasts for 90 days and depending on the lender, some may have an option to roll over if the pre-approval expires. This gives you gives you up to 75 days to sign a contract (allowing time for the valuation to be done and formal approval to be issued before the 90 day period ends)
- It speeds up the formal approval process – once you have signed a contract, generally, all the bank needs to complete is a valuation on the property and sign off any other conditions they may have included.
- You have more negotiating power – vendors love to hear that you have been pre-approved, it confirms that you are a serious buyer
- It gives you confidence in your borrowing capacity and to focus your search for properties within your affordability range
- It helps to minimise some of the stress when you do find a property
How much should I get pre-approved for?
It is recommended that you get pre-approved for the absolute most you would ever consider borrowing. You can always borrow less but if you end up requiring more than your pre-approval, the whole assessment process will need to restart from the beginning.
Is a pre-approval unconditional finance approval?
No. For your finance to be unconditional the lender still needs to order a valuation on the property to confirm that it is acceptable security to them. You also need to meet any other conditions the lender may include for example, if you’re purchasing an investment property, they will require a rental appraisal for the property.
Any contract you sign should still include, a finance clause to allow the time for the bank valuation to be done and for any other conditions of the pre-approval before your formal/unconditional approval can be issued.
It is also a condition of your pre-approval that your financial circumstances remain unchanged.
What if something changes after I’m pre-approved?
Your pre-approval is issued based on the circumstances you’ve declared in your application, so it’s important that you avoid, at all costs, making any changes without discussing these with us first.
- Taking on any other new credit cards, car loans or personal loans. Even just inquiring about a new facility will leave a footprint that could cause issues.
- Spending funds that you’ve saved towards your deposit
- Changing jobs; including any changes with your current employer such as reducing your hours or going from permanent employment to a contract.
Sometimes circumstances change unexpectedly, if this happens, please reach out to us straight away so we can help you understand the possible implications before you sign a contract.
Are all pre-approvals the same?
No, not all pre-approvals are created equal:
- Some lenders don’t fully assess pre-approval applications (i.e. they don’t review payslips etc) which could mean surprises when you find do find your property.
- Not all lenders hold the assessment rate for the 90-day period. Where a lender doesn’t hold the assessment rate, your borrowing capacity will drop with each rate increase during the 90-day period.
- If your finance requires Lenders Mortgage Insurance, some lenders can give an LMI pre-approval, others will only submit your application to the LMI provider once you have a contract. Again, this could mean there will be surprises when you find a property.
At Affinitas Finance, we work with you to clearly understand your circumstances and select a lender who can issue a pre-approval that works for your circumstances. In the event you need to use a lender that doesn’t issue a full assessment, we’ll help you to understand and manage the potential risks that go with that pre-approval.