The three steps to home loan pre-approval
What is pre-approval? How long does it take? What steps are involved? Let’s get into the nitty gritty of this important, yet often overlooked, step of the application process.
If you’re considering making your next property purchase then getting pre-approval for your home loan is definitely recommended. As well as saving you time on your property search, it also protects you from over-committing, should you buy at auction.
The benefits of pre-approval:
Confirm your ‘borrowing power’
Save time on property searching
Get a competitive advantage
Protect your deposit
Be sure on the valuation
Why should I get pre-approval?
Well, as we just mentioned, it gives you insight - into what you should be looking for price-wise. It’s easy to jump in with both feet and tempt yourself with properties that are actually out of your affordability range. And don’t worry; most people are the same - house-hunting is exciting!
Getting pre-approval confirms that 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. While this may sound a bit dull, like having your wings clipped before you even take off, there are a few major benefits.
You can confirm your borrowing power
Before you start searching for a property, it’s pretty important to confirm your borrowing capacity. After all, it’s no fun getting excited about potential properties only to find they’re out of your price range.
Online calculators can give you an idea of what you might be able to borrow, based on your income and savings, or what your repayments might be on a loan amount, interest rate and time frame (term). While useful, they only really give you general guidance. For example, they don’t show you what repayment you’ll be able to make after you meet your other living expenses and financial commitments.
With your loan pre-approved, you’ll know exactly how much you can afford to pay for a property. It gives you a solid understanding of your finances and a clear spending limit. Getting pre-approved through a reliable broker like HoLo can also help identify any hidden issues, as well as spot something that may have been overlooked.
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 means you know your property price range, helping you save time, avoid wasted effort at open homes you can’t afford and prevent disappointment
It gives you a competitive advantage
In a competitive property market, it’s important to move fast. Sought-after properties sell fast and having pre-approval means you can make an offer as soon as you’re certain - something estate agents love!
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 auction, a pre-approval also helps you negotiate from a position of strength.
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 auction, pre-approval is particularly important because your deposit here 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, HoLo recommends you make sure your finance approval is rock-solid before you bid.
The property must also get valued
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. 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’ve chosen. This is an important step as some properties may not be acceptable to a bank.
Reasons for this may be that it’s remotely located, its value is less than the loan amount or the location is ”risky”, amongst other concerns.Online calculators can give you an idea of what you might be able to borrow, based on your income and savings, or what your repayments might be on a loan amount, interest rate and time frame (term). While useful, they only really give you general guidance. For example, they don’t show you what repayment you’ll be able to make after you meet your other living expenses and financial commitments.
How long does pre-approval take?
Turnaround times for pre-approvals vary by bank and start from the time your application is submitted. Verify with your broker the expected timeframe for your preferred lender. Make sure you give your broker all the correct documentation needed at the start, as this will help achieve a speedy turnaround.
Follow these three easy steps to get your home loan pre-approval
Collect your documents:
Proof of identity
Proof of income and savings
Proof of living expenses and other expenditure
Evidence of current assets and liabilities.
Talk o your broker about:
How much can you borrow
How much you require for a deposit
How much you can repay each month
If you qualify for a government grant or concession.
Your broker submits your pre-approval application:
HoLo fills out the forms and does all the work
The bank provides confirmation in writing
Pre-approval lasts for 3-6 months.
Ready to secure loan pre-approval?
If you need pre-approval for your house hunt then let HoLo arrange it for you. We’ll answer any questions and guide you through the whole process, allowing you to confidently focus on finding that perfect property.
If you’d like to know more, book an appointment or contact us.