Buying a home, whether as a “First Home Buyer” or “Next Home Buyer”, can be daunting at the best of times. But the stress of getting finance can be alleviated by securing a ‘Pre-Approval’ with your lender of choice prior to going house hunting. Here, we show you how it works.

What does a Pre- Approval Involve?

Many lenders will do a full assessment of your position for a Pre-Approval as opposed to an on-the-spot system generated option offered by some. A fully assessed Pre-Approval application requires the applicant to provide income, savings and liability evidence with the lender doing their standard checks and assessment pending the applicant locating a suitable property. The lender will issue written confirmation of the loan amount the applicant qualifies to be considered for which is valid for three to six months, but this is not a Formal Approval.

Why apply for a Pre-Approval?

Particularly in the case of a First Home Buyer, a Pre-approval gives you the peace of mind of knowing not only that you can obtain finance but how much of a loan you are able to secure. That then will determine the purchase price you will be in the market for.

Having a written Pre-Approval can also serve to give you leverage when negotiating on a contract of sale as the likelihood of a formal approval is higher and the process quicker than if the finance process had not been started.

What Happens Once a Purchase Property Has Been Found?

When a Contract of Sale has been signed, it will be forwarded to the lender to be verified. Firstly, the bank will deem if it is a suitable security in line with their policy and then a valuation will be completed.

The bank will most likely require updated pay slips to confirm that your income has not changed along with most recent bank statements to verify funds to complete are held.

Will Your Loan Be Formally Approved if a Pre-Approval is in Place?

The short answer is, not necessarily.

Whilst a Pre-Approval is a sound strategy to give the applicant a clear indication of what finance they can be considered for, it does not guarantee that when a property is found Formal Approval is guaranteed. There are certain instances where the finance may not be granted.

If the security property falls into a category which is considered unacceptable by the lender the finance will not proceed. Certain postcodes are not considered by certain lenders along with types of properties such as hobby farms, serviced apartments or small apartments.

The valuation of the property may also impact the approval if it returns under the purchase price and the applicant does not have sufficient funds to complete. In addition, if the valuation highlights structural issues or the property is in a state of disrepair this may impact.

If your personal circumstances change after the pre-approval is granted particularly in relation to your income, then there may be an issue in getting the same loan amount approved. Furthermore, interest rate rises may also impact your ability to service the same loan amount so be mindful of this if you look to borrow your maximum loan amount.

A Pre-Approval is a great way to get your ducks in a row if you are looking to purchase a new property and give you the peace of mind of knowing what you can and can’t do. Your Mortgage Broker will be able to guide you through the process and show you how easy and efficient the process can be.