A pre-approval (also referred by lenders as an approval in principal or conditional approval), gives you a formal indication from a lender that you’re able to borrow money to purchase a property up to a certain value based on the information provided. Pre-approvals are provided by applying for a loan where you haven’t yet found the property.
Here Are 5 Reasons To Get A Home Loan Pre-Approval
- Pre-approvals are generally valid for up to 90 days, and are able to be extended a further 90 days if updated income and liability documents are provided
- Extensions are commonly requested if you do not find the right property during the initial time period
- Remember that a pre-approval is not a formal approval of finance. The pre-approval will be subject to you meeting the required terms and conditions for the pre-approval, the property being acceptable to the lenders requirements and no adverse changes in circumstances.
- Not all lenders provide pre-approvals and there is a significant variance in the quality of pre-approval. To get a pre-approval which can give a good indication in your ability to borrow, you’ll need to submit a full loan application sans a property address noted. Note that a pre-approval is the same as a standard home loan application, so be careful in applying for these frivolously. Each application will put a hit on your credit file which impacts your credit score, so only apply for a pre-approval if you have a genuine intention to buy a home.
5 Reasons to Get Pre-Approved
- Understand your budget
Getting a pre-approval and understanding the maximum loan amount your lender will provide gives you a strong understanding of your budget when buying your home. This can mean you can narrow down the available homes based on these figures and ensure you don’t spend more than you can afford.
- Add strength to your offer
When putting an offer on a home where there are multiple offers in place, offers with finance in place via pre-approvals are seen as more favourable than others as they are seen are more likely to be successful and not fail during the subject to finance period.
- Increase your negotiating power
Following on from the previous point, having a strong offer means that you can potentially negotiate on other terms. Whether it may come down to the settlement date or purchase price having a pre-approval can give you the edge against your competitors.
- Settle on your home quicker
Home loan applications can take a lot of time with multiple back and forth questions and requests from the lender. By being pre-approved, you can remove a lot of these time delays before you sign any contract, meaning you have more time to get formal approval and can potentially settle on your new home quicker.
- Real estate agents take them seriously
A lot of real estate agents are cautious with trusting potential buyers as they don’t want finance to fail and having to relist the property on the market, taking up valuable time and slowing the sale process. By having a pre-approval, you can increase your likelihood that they will take you seriously.
Would you like to see if a pre-approval is right for you? Contact us today to find out your options.