Continuing our look into the Home Loan process, this week we are going to have a look at Home Loan Pre-Approvals. What are pre-approvals, how do you apply, why and when would you use them?
What are Home Loan Pre-Approvals?
The Home Loan Pre-Approval means that your Lender has given you a conditional approval or an approval ‘in principle’ prior to purchase. Although subject to terms and conditions, a pre-approval basically gives you the green light on your home loan while you are still looking for your dream home. That way when you find your perfect place you’ll able to make an offer with confidence.
How to apply for a Home Loan Pre-Approval?
The application process for a Home Loan Pre-Approval with most lenders is the same as if you were making a normal application for a home loan. The lender will do a complete credit assessment, including confirming your income and commitments. This helps them understand your ability to repay the loan.
The Home Loan Pre-Approval is normal conditionally approved or approved ‘in-principle’ and the approval can be valid for periods of 3 to 6 months, and some lenders have processes in place to renew the application after the initial period if you have not found your dream home. The main condition attached to the approval will be subject to valuation, once you have found your dream home, the lender will check the value of the property and the LVR of the loan to ensure it still meets their lending requirements. Usually at this point the lender will also reconfirm your income and check that there has been no significant changes from your original application.
Once the lender ticks those final boxes, you will receive your unconditional approval and the next step is settlement. Depending on the type of valuation and checks the lender has to do, unconditional approval may be received anywhere from a couple of hours to 2-3 days.
Why get a Home Loan Pre-Approval?
Some of the benefits for getting your loan pre-approved include:
- Peace of Mind – You know how much you can borrow and this will take some of the stress out of buying a property.
- Jump the Queue – Being pre-approved means you can act quickly when you find the property you want.
- Stronger Bargaining Position – A pre-approval sometimes will allow you to negotiate a better purchase price from the seller, especially if you can have fewer stringent conditions in the contract of sale.
- No Cost to you – Besides some time in completing the application, their is no cost to you if you don’t proceed with the loan.
When should you get a Home Loan Pre-Approval?
For peace of mind and the added security of knowing that your lender has approved you to borrow a set amount, there is no reason not to get a pre-approval for just about any property purchase. Whether you are a First Home Buyer, looking for your next home or maybe it is an investment property, being Pre-Approved does not require anything extra from the normal approval process and often will speed the purchase process up.
Cautionary Note
A note of warning, pre-qualifying for your home loan is not a pre-approval. Even if you have pre-qualified you will still have to go through the normal loan application and approval process which may end up with a lender turning you down. Getting a pre-approval will help take some of the stress and tension out of purchasing your dream home.