Home Loan Pre-Approval – What Does It Mean And What Next

What is a loan pre-approval?

Pre-approvals can be referred to in a few different ways – conditional approval, indicative approval, or approval in principle – but they are all the same.

Pre-approval is the approval of a home loan application before the borrower has found a house. This type of approval typically provides an estimate of the amount of money that can be borrowed and what the monthly payments would be. It also gives an edge over other potential buyers when seeking their dream home.

A pre-approval is an estimate of the amount a lender will approve. Being pre-approved for a home loan gives you borrowing power and can help you shop for a home with confidence and a sense of security in your home-buying journey. Borrowers can move forward confidently, knowing they are likely qualified to complete the purchase.

A pre-approval is an official statement from the lender that says the borrower meets the financial requirements for a specific mortgage loan. Before borrowers look at any properties, they are advised to check with a trusted professional to make sure they can afford the mortgage payments.

Pre-approval for a home loan is an evaluation process that helps determine whether the borrower has sufficient income and credit to qualify for a loan. It is considered critical to obtain pre-approval before an offer is made to purchase a home or an investment property.

 

What about pre-qualification assessments?

Online tools offer pre-qualification calculations for prospective borrowers to determine whether it is worth proceeding with pre-approval.

The online tools can provide a ‘ballpark’ figure on how much could be loaned and the level of repayments expected, depending on the basic information provided.

The qualification calculation is immediate and considered approximate only.

These pre-qualification assessments are not recorded against the prospective borrower’s credit rating, which occur when doing an official credit check.

 

 

What are the advantages of pre-approval?

Pre-approval can assist in efforts to negotiate a fair deal for the interested property. Many buyers can and do get pre-approvals from their lenders before they begin house shopping.

A home loan pre-approval allows buyers to quickly and confidently pursue a property before the final approval of the mortgage. Having this information can speed up the purchase process, reducing the total time from when the first expression of interest in a home to the move-in date.

Pre-approval can help home buyers move quickly and efficiently towards a new property when they find it. The pre-approval process is simple and efficient, but it does require some basic information about income and assets. A lender’s pre-approval will mean that the purchaser is ready for a faster transaction, as the bank or lending institution has already checked credit and financial status before agreeing on a loan amount.

 

What is the process for getting a loan pre-approval?

The first step to applying for pre-approval is often an online application and uploading a list of documents required by the lender. The application can also be made in person.

A lender typically requests tax assessment notices and other documents, such as earning letters or remittance advice, that show the potential borrowers financial situation. The lender may need to gather other documents such as bank statements, credit reports and any additional information the lender requests.

Self-employed workers are often asked for greater financial details and evidence of earnings to show their financial position.

Once all details have been provided, and repayment capability requirements have been met, a preapproval letter from the bank is then issued and forwarded to the prospective purchaser by email or mail.

 

 

 Some things to note about pre-approvals:

  • A pre-approval letter does not guarantee that the purchase will proceed.

There may be circumstances where the bank does not agree with the valuation of the property, so it cannot justify providing funds for a property that does not match the amount provided.

It is often worth asking the lender what aspects of a property they consider may contribute to a redetermination of a property valuation.

Banks may undertake a formal assessment or a simple drive-by inspection of the property to ensure valuation integrity. Either type is likely to further involve an online investigation of purchase history.

Another factor that may prevent the purchase from proceeding is if the purchaser’s circumstances have changed. If the level of income changes or declared assets have been disposed of,  these changed circumstances can fundamentally change the level of funds being available to loan.

A change in interest rates can also affect pre-approvals, particularly if the changes are dramatic.

 

  • A pre-approval application is included in the client’s credit history

It was previously mentioned that online pre-qualification assessments were not recorded against the client’s credit history, but full assessment pre-approval applications are noted in the credit history.

 

  • Pre-approval letters expire

Lenders vary the expiry date on their pre-approvals, but generally, they are within the range of three to six months.

The validity period is a sensible limitation applied by the lender because markets can change after a short period and the borrower’s own circumstances may also change.

It is wise to thoroughly research the properties that the borrower is interested in purchasing and have a shortlist of preferred options before seeking a pre-approval letter from the lender to fall within the validity period of the pre-approval.

Pre-approval letters can be renewed at the expiry date if required.

With a pre-approval in place, borrowers can go house-hunting with confidence. Real estate agencies welcome house hunters with a pre-approval letter in hand, as it indicates that the borrower is serious about their intent and that property purchase is achievable.

So, in summary, getting a preapproval for a home loan is a good idea when embarking on your housing hunting journey.

 

For more information about Reduce Home Loans’ competitive home loans, or to speak to an expert for more information, please don’t hesitate to get in touch today.

 

 

Any statements are general in nature and do not take into account your financial personal situation, objectives or needs. You should consider whether any statement/s is suitable for you and your personal circumstances. Before making any financial decision, consider your circumstances and the product disclosure statement.

1300 733 823