How getting home loan pre-approval can boost your buying power

Aug 29, 2017

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When you’re looking to buy a new home, things can get competitive. There will be other people out there interested in the same properties as you, and the seller often has their pick of potential buyers. That’s why we encourage our members to jump on any advantage that can help you secure your dream home.
Doing your homework upfront and getting a home loan pre-approval can definitely give you an edge. But the best part is, it doesn’t require a big effort.

What is home loan pre-approval?

This is when a lender agrees in principle to provide you with a home loan at an early stage in your home-buying process. It happens before they assess your full application and give final approval. The lender will ask you for certain details in support of your initial application in order to give pre-approval. These may include details of your income, savings and other debts you may have.

Pre-approvals normally last for up to 90 days and have various conditions attached. These relate to the property and your financial position. A pre-approval is an approval in principal based on the information provided at the time of the pre-approval application. It isn’t a guarantee that the home loan will be funded, as once you’ve found a property you’ll still need to complete a full application which requires final unconditional approval by your lender.

The good news is that most of the supporting documentation required in the pre-approval application is the same for the full application. This means you can do a lot of the paperwork upfront which will save on time when you’ve found your dream property and are ready to make your big move.

How does home loan pre-approval put you in a strong buying position?

green-tick It gives you a clear idea of your budget

When you go through the pre-approval process, the lender will help you to figure out how much you can afford to borrow early in the process. They’ll explain what deposit you’ll need and what other costs may apply, like lenders mortgage insurance for example. This can give you confidence to look at properties in your budget range and save you the time and heartache of looking at properties you may not be able to afford, or even properties that are below your price range. It helps you to narrow your search to certain suburbs or areas and to certain types of property.

green-tick It allows you to act fast

If you find the property of your dreams, chances are someone else will have spotted it too. If you’re not in a position to act fast, there’s a strong possibility that the property will already be sold by the time you get to putting in a home loan application and then making an offer. With pre-approval secured, you’ll be in a position to make an offer immediately and be less likely to miss out.

green-tick It strengthens your negotiating power

Having a lender’s seal of approval in the form of home loan pre-approval makes a strong statement to a seller. It shows them that you’re serious about the purchase and are more likely to be able to access the funds needed for a smooth sale (subject to final approval, of course). This will put you in a much stronger position than a potential buyer who hasn’t yet started the process with their potential lender.

green-tick Most of the paperwork is completed upfront

When you’re deep in the home-buying process, considering properties and eager to make an offer, the last thing you’ll want to be doing is scrambling around trying to find pay slips. With an application for pre-approval, you’ll be asked to supply documentation such as pay slips and bank statements early in the process. This will leave you to focus on other things later.

green-tick Pre-approval opens up the possibility of buying at auction

Unless you’re a cash buyer, having pre-approval for a home loan is vital if you’re buying at auction. Without it you run the risk of having your bid accepted and then not being able to fulfil the sale if your post-auction loan application isn’t approved. While this may still happen with a pre-approval in place (a pre-approval doesn’t guarantee that your home loan will be approved), it offers you an opportunity to discuss your lending needs with your lender so you’ve a clearer idea of where you stand. The lending specialist can help you explain the risks around purchasing at auction.

green-tick It’s fee and obligation free

Applying for a home loan pre-approval won’t cost you anything and you’re under no obligation to actually take out the loan. So if your circumstances change or you change your mind, you can walk away. Pre-approvals are valid for 90 days, but if you need longer they can easily be renewed.
A word of warning, though. Going to lots of different lenders for pre-approval on a loan may affect your credit score.

What’s the process for pre-approval?

  • Decide on a home loan provider
  • Make an appointment with a lender
  • The lender will discuss your needs and objectives and ask for certain financial information for example proof of income (payslips) and any assets/liabilities to determine the deposit you may require and how much you can afford to borrow
  • Submit an application for home loan pre-approval
  • Lender reviews application subject to its lending and credit assessment criteria
  • Pre-approval granted (valid for up to 90 days)
  • Find your dream property
  • Make an offer to purchase based on pre-approved loan amount
  • If offer is accepted, complete full loan application
  • Full approval granted
  • Loan funded

It’s worth bearing in mind that this example assumes that the applicant submits a pre-approval and then a full home loan application that both meet the home loan provider’s lending and credit assessment criteria. Not all pre-approval applications will be successful, and the same goes for full applications. However, a home loan specialist will be able to assist you in these cases to understand why an application has been declined and what steps you can take to help make your property dreams a reality.



Ready to apply for pre-approval?
Speak to a CUA Home Loan Specialist today

Please note that this is only intended as a general guide in relation to issues you may want to consider when buying a home. It is not intended to be an exhaustive list of all relevant issues and you should take into account your own particular circumstances, and obtain independent expert advice where needed, before proceeding. Rates and savings quoted are indicative only for illustrative purposes.
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