Confused About Home Loan Pre-Approvals?

 You want to buy a property, but are you ready?  Before you put in an offer you need to know you have the funds available to purchase.  For most of us that means obtaining a loan, and the first step to getting one is obtaining a pre-approval for it.

Pre-approval (also known as conditional approval or approval in principle) is an indication from a lender as to how much you can borrow, which will correlate to a maximum purchase price you can offer.  With a pre-approval vendors and agents know you are a serious potential buyer, and not wasting their time.  So what are the steps to pre-approval?

For most Australians the first step is to see a mortgage broker (the majority of residential loans in Australia are submitted via brokers, not direct to lender, that has been the case for a number of years now).

You will need to provide to your broker comprehensive detail of your financial position, including assets and liabilities, income and expenses, (which includes a break up of living expenses).  You should be prepared to provide proof of everything including pay slips, tax returns, and bank statements for loans and savings accounts.

Your broker will then be able to provide you with a detailed analysis of your position including borrowing capacity, which can vary dramatically across different lenders.  It is only then that you will know if you are truly ready to buy!

If it is appropriate to do so, now is the time to apply for a pre-approval to a specific bank suitable to you.  Note this pre-approval is only valid for 90 days, and is not a guarantee of a loan, it is indicative only, you need to be aware of what that entails.  Ongoing communication with your broker as to the property you wish to purchase and as to any changes in circumstances is most important.

Then you can househunt with confidence, at auction or private sale.  Remember if you purchase at auction the contract is unconditional, whereas at private sale you may offer subject to finance (generally 14 days).  Many buyers prefer to buy private sale and subject to finance even if they have pre-approval, that decreases risk in the process.

With a successful offer you will have a contract of sale, then we apply to the lender to upgrade the pre-approval to formal approval (also known as unconditional), and the process to settlement begins.

Researching your ability to borrow and obtaining pre-approval is a critical element of your journey to purchase.  Contact your mortgage broker today for help in finding out how much you can borrow.

Integrity Finance Australia – Changing Lives

Daryl Borden Ph. 03 9511 8883 ACL 392184