Buying a house is complicated. Right now, it seems to be particularly so. There’s often limited availability in stock and a need to prove to the bank your ability to service a loan seems to be becoming more complex with each interest rate rise!
An important step in the process of buying a home has always been securing pre-approval from a lender. Having this in place puts you in a strong position to present your offer and importantly can also reduce the time it takes to secure the formal green light on your home loan.
So what about if you were to learn that after all the months of searching for the right property, you found that your ‘pre-approved’ finance was not worth the paper it was written on? It could be devastating. Sadly it happens quite often and because we know it can be avoided, here’s our guide to ensuring you have the strongest pre approval possible to help you in your search for a property.
What is finance pre-approval?
Home loan pre-approval (or conditional approval) means that a lender has agreed to lend you money towards a home purchase, up to a certain limit and subject to certain conditions.
Pre-approval provides a few things. Firstly you will have an approximate budget to work with when looking for a property, which can narrow your search and avoid disappointment. This will also provide you with the ability to negotiate with more confidence and give the vendor more confidence in your bid. Additionally, it can help you move forward with your formal approval more quickly.
The checklist
Here are our top questions to ask yourself of your pre-approval to make sure it’s as strong as possible:
How old is your pre-approval?
For most lenders, pre-approvals are valid for between three and six months. This is because both a borrower's financial situation and the property market can often change over a few months. Importantly, it’s worth considering if the approval you have still suits your needs which may have also changed in that time.
Have your circumstances changed?
It may mean that you are in a better position financially but also you may be transitioning between jobs and a change in circumstances will be reflected on your recent payslips or bank statements. Equally, if you have changed from being full time to a casual employee, it’s important to note that this could have an impact on your pre-approval.
3. Have you applied for credit card or car loan during this “pre-approved “period?
Applying for a credit card with multiple lenders, particularly over a short period of time may impact your credit score negatively so it’s important to be considerate of this during that time of holding your finance pre-approval to purchase a property.
4. Has your deposit increased?
It may be that you’ve had a cash gift, or the sale of an asset such as a car or even a tax rebate that increases your borrowing power. If the amount of money that you can provide as a deposit has increased, this could potentially open the opportunity for additional borrowings. This is particularly helpful if the property you have found is a higher asking price.
5. Is the security the same?
When securing finance pre-approval, it’s necessary to list what security you will put against your purchase. This may be cash or a guarantee by a parent, perhaps the security of an existing property. Following your pre-approval, it’s important to maintain the terms of what was provided to receive that pre-approval. It’s also important to note that all lenders have slightly different policy on their acceptable securities that could affect the loan to value ratio you are able to work within.
6. Is the lender you secure pre-approval with, still the lender you would like to have your home loan with?
Offers for rates and terms changing regularly with lenders, so it’s possible that while finding your property, you have a different preference for the lender you’d like to formalise your home loan with. It’s often worthwhile looking at multiple lenders to ensure you have the right loan for your circumstances.
What difference does a mortgage broker make for your Pre-Approval?
As a mortgage broker we can gather all the information required and understand your long-term goals to assist in planning during the property search.
This includes potentially qualifying your position with multiple lenders and not needing to commit to one or another in case something with your property purchase guidelines changes. Equally, if the lender changes their position to one that no longer fits your situation you will have greater flexibility to transition to another lender.
The preparation of finance pre-approval can take some time. As a mortgage broker we’re able to take a large portion of this work off your hands. We know the questions to ask and the information you will likely need to provide. We know it can be a real asset to have a mortgage broker assist in the process and importantly can make all the difference when it comes to securing that perfect next property for you.
If you’d like to know more about securing finance pre-approval for your property search or you’d like to know if the pre-approval you have might need to be reviewed please reach out and we’d be pleased to have a discussion. If you’d like to get started on working with us, please compete the enquiry form below and one of our team members will be in touch.