If you’re eager to begin your property search but lack certainty about your borrowing capacity, consider the importance of home loan pre-approval. This process allows you to confidently participate in auctions and make offers, offering clarity on your financial limits. By obtaining pre-approval, you can avoid wasting time on properties beyond your budget and gain a more accurate understanding of your potential borrowing amount.
Home loan pre-approval, also referred to as conditional approval, occurs when a lender agrees in principle to lend a specific amount of money for a home loan to a borrower. This step is commonly pursued by borrowers when they are prepared to initiate their property search.
Benefits of Getting Pre-approval
Getting pre-approved for a home loan offers several benefits, providing clarity and confidence in the homebuying process. Here are some advantages:
- Know Your Budget: Pre-approval helps you understand the amount you can borrow, allowing you to focus on properties within your budget. This saves time and ensures you’re looking at homes that align with your financial capacity.
- Confidence in Negotiations:Sellers may view pre-approved buyers more favorably, as it signals serious intent and the ability to secure financing. This confidence can strengthen your position in negotiations.
- Quick Decision-Making: In a competitive housing market, being pre-approved gives you a competitive edge. You can act swiftly when you find the right property, making timely offers and potentially expediting the purchase process.
- Streamlined Property Search: With a clear understanding of your borrowing capacity, you can streamline your property search. This focused approach helps you avoid wasting time on homes that are either too expensive or below your financial capability.
- Potential Interest Rate Lock: Some lenders may offer the option to lock in an interest rate for a specific period during the pre-approval process. This can be advantageous if interest rates are expected to rise.
- Negotiation Power: When you make an offer, sellers are more likely to take you seriously if you are pre-approved. It shows that you have taken the necessary steps to secure financing.
- Identify Potential Issues: The pre-approval process involves a thorough assessment of your financial situation. This can help identify and address any issues or discrepancies in your credit history before they become significant obstacles.
In summary, home loan pre-approval empowers you with financial insights, enhances your credibility as a buyer, and facilitates a smoother and more confident homebuying experience.
Is it possible for my pre-approval to be declined?
Similar to any home loan application, there is a chance that your request for pre-approval could face rejection. Some potential reasons for this occurrence may include:
- Inaccuracies or omissions of information in your application
- A low credit score or unfavorable credit history
- Changes in your lender’s lending policy, rendering you no longer compliant with their requirements
- Sudden alterations in your financial circumstances
- The property you wish to purchase is not approved by the lender (e.g., a studio apartment, a property with significant structural issues, serviced apartments, etc.)
- Requesting a loan amount exceeding 95% of the property’s value.
Is it possible to prolong your pre-approval?
If your pre-approval period has not yet lapsed, it is likely that your lender will be amenable to extending it for you.
Extending pre-approval does not involve any additional costs on your part. You can contact either the lender who issued your pre-approval or your broker to initiate the extension process. This approach eliminates the need for a fresh application and resubmission of all the documents from your initial application.
In certain instances, you may be required to furnish additional documentation, particularly if there have been changes to your financial situation.
What occurs when your pre-approval lapses?
Usually lasting for a period of 3-6 months, your home loan pre-approval might expire if you haven’t secured the right property within this timeframe or haven’t successfully sought an extension.
Upon expiration, you have the option to reapply for pre-approval with the same lender or opt for a different lender if you prefer. The process will entail submitting updated versions of the same documents used in your initial application.
How should you proceed with your pre-approval once you’ve identified a property?
Once your offer on a property has been accepted, it’s crucial to inform your broker promptly. Your broker will initiate the necessary steps to finalize your home purchase.
Initiating the formal home loan approval process promptly is essential to avoid potential delays in settlement or the risk of another buyer’s offer being accepted. Providing your broker with a copy of the contract and paying your deposit after the cooling-off period, if applicable, are key steps in this phase.
Additionally, arranging relevant property inspections, such as building, pest, or strata reports, is necessary. If you have a conveyancer or solicitor, they can handle these tasks on your behalf.
Should you have any inquiries regarding pre-approval or the home buying process, an Aussie Broker is ready to assist. Feel free to reach out and schedule a convenient time for a discussion.