Home Loan Pre-Approvals
Updated: Jun 30, 2020
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?
A home loan pre-approval is a lender’s assessment of your likelihood of being approved for an otherwise suitable loan. The appraisal is made on the basis of your ability to service a loan by looking into a range of factors including 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.
“A pre-approval means my client can start looking at properties knowing how much they can borrow and what their maximum purchase price is.” explains Melbourne Mortgage Advice mortgage broker, Jon Ward. “Borrowers can feel confident in knowing that a lender has assessed their application and, subject to conditions, given them the green light.”
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. It is very important to note that a pre-approval is not a guaranteed loan. It is issued subject to critical conditions which must be met before finance can proceed.
“Lender credit criteria is a constantly moving target and can adversely affect a pre-approved loan” Jon says. “Great communication between borrower and broker is the key to navigating the challenges.”
Another thing that may cause a lender to decline your loan application after pre-approval is a change to your pre-approval circumstances. “We need to make sure our client’s financial situation has not adversely changed. Taking out a credit card or car loan, changing jobs or reducing hours of employment can all have a detrimental impact on getting formal approval of a loan”. Always speak to your broker before these changes occur to understand what impact they may have.
Your pre-approval will always be conditional upon the lender receiving a satisfactory property valuation report. If your lender does not deem the property a marketable asset, they may not approve a loan. “The property needs to meet the acceptable security criteria of the lender. For example, units under 50sqm in size, converted warehouses or properties in certain locations can all be deal breakers. We help our clients with CoreLogic Property research reports and always recommend a conveyancer is engaged before negotiating offers” Jon says. Keeping your broker informed of any property negotiations before they become unconditional is the best approach for a borrower to take.
In summary, a Pre-approval is not a guarantee, but a very useful tool for anyone looking to buy a property. For the safest path forward, get in touch with Melbourne Mortgage Advice and get your pre-approval before you lock in your Saturday open home schedule.