The ins and outs of pre-approvals
Getting pre-approval for your home loan can give you an understanding of your borrowing power and confidence your lender is satisfied with your preliminary application. It means it is time to get out there to find your home.
To help you on your way, here is a quick overview of what your pre-approval means.
The basics
A pre-approval is basically the lender giving you the heads up that they feel comfortable lending a certain limit to you, based on the circumstances we presented to them. There is no obligation for you to take out the loan and equally, the lender is not guaranteed to approve the loan approval - particularly if your circumstances change. It does, however, help you to refine your property search, bid with confidence and show vendors you are serious about buying.
How long is pre-approval for and what can I do if it is expiring?
In general, pre-approval can be around two or three months, depending on your lender. Your paperwork sent separately will outline the expiry date of your pre-approval.
If the expiration date of your pre-approval is approaching, reach out. We can discuss your options and since we already have your documents on hand, can potentially fast-track an application for an extension or a new pre-approved product.
Are there limitations to a pre-approval?
It is important to note the pre-approval is conditional (and based on your circumstances at the time of application), and not an absolute guarantee of being approved for the loan. That said, we will work with you to do everything in our power to get your finance across the line, and the pre-approval is a solid indication the lender is comfortable lending to you. If any of your circumstances change, let us know and we can discuss whether this could change your application.
Some lenders have restrictions around the type of property you can purchase and will also conduct an evaluation before the loan is approved to ensure it is satisfied with the value offered. Some limitations can include:
- Serviced apartments
- High-density properties in inner-city areas (particularly if you have less than a 20% deposit)
- Commercial or company title properties
- Properties under 50sqm
Does my pre-approval change if interest rates rise?
Small changes in interest rate increases are unlikely to impact your pre-approval as the lender will take this into account as a possibility when assessing the approval. However, pre-approvals are conditional, meaning if there are major changes between getting the pre-approval and applying for the loan - such as changes to your income or interest rates increasing significantly - your borrowing power and loan application could be impacted. Because of this, it is a good idea to speak with us before making an offer on a property and including a finance clause in any home purchase contract.
I found a property I like. What next?
If you’ve found a property you believe is in your price range, it is time to make an offer. Reach out to us first to ensure it satisfies the lender’s criteria and to receive your free property report. This report shows you the previous sales data of the property as well as recent transactions in similar properties nearby to give you an indication of what the property you like may be worth.
The way you make an offer, and the legalities around how binding the offer is, depends on the type of sale. For example, auctions are unconditional so your bid is binding. If you are asked to make an offer on a property on a contract, or your bid is accepted and you are sent the contract, speak with your solicitor or conveyancer to ensure you are satisfied with any conditions, including cooling-off periods and building and pest inspections. Even though you have pre-approval, it is usually a good idea to include around ten days for finance approval, but speak with us if you have any questions about this.
Remember to let the real estate agent know you have pre-approved finance so they know you are serious and likely able to move quickly. This can give you a competitive advantage.
My bid was accepted. Now what?
Congratulations! This is an exciting time, and the next few weeks will be busy to lock everything into place ready for settlement. Firstly, contact us to let us know and we can let you know what comes next.
You will usually be required to pay a deposit to secure the property. For auctions, this is often a 10% non-refundable deposit, and for other sales it can be 25% of the purchase price. Make sure you have this deposit money ready to go, and understand what you need to do based on your contract. Your solicitor or conveyancer can help with this.
Once we have a copy of your signed contract, we will work with you and your chosen lender to get your loan formally approved and finance ready by your settlement date. We will keep you updated every step of the way.