Many people make the mistake of shopping for their home without getting a pre-approval from the bank. They usually find a house they like then try to get the loan. This is a big mistake and we will discuss why.
Firstly, What is a pre-approval?
A pre-approval is when the bank has conditionally agreed to lend you a certain amount of money after going through a thorough assessment of your financial situation.
This assessment includes verifying: your income, expenses, bank statements, spending habits, credit history and a stress test whether your income can support all your living/ household expenses as well as the expenses of owning a home (mortgage repayments, council rates, house insurance, body corp etc).
As a result, getting a pre-approval is important for the following reasons:
1. Better borrowing understanding (save time and energy)
A pre-approval will help you determine how much you can afford to borrow from the bank based on the information given above. It gives you a clear understanding of your budget, allowing you to search for properties within your financial limits. This means you can focus on homes that you know you can afford and avoid wasting time on properties that are out of your reach.
2. Better negotiation position
When you have pre-approval, sellers and real estate agents will take you more seriously because you have already demonstrated your eligibility for a loan. This can give you an advantage in negotiations, especially in competitive real estate markets.
3. Confidence in making offers
With a pre-approval, you have confidence in making offers quickly when you find a property you like. You don't have to wait for lengthy approval processes, which puts you at a disadvantage when there are multiple buyers interested in the same property.
4. Speeds up buying process
Having pre-approval simplifies and speeds up the buying process. Once you find the right property, the loan application and approval process can be shortened as you’ve already provided much of the required information during the pre-approval stage.
5. Avoid anxiety and disappointment
Falling in love with a property only to later find out that you cannot secure lending for it can be disappointing and disheartening. A pre-approval reduces the risk of disappointments by giving you a realistic understanding of your borrowing capacity.
6. Does the pre-approval guarantee your loan?
No, a pre-approval does not guarantee that you will get the loan as the final approval depends on additional factors, such as the property valuation and the banks assessment of the property. However, obtaining pre-approval increases your chances of succesfully buying your house.
If you’d like to know if you are eligible for a pre-approval or want to get the process started - please get in contact with us or you can fill your details via our customer portal.
Disclaimer
The contents of this article are for information-only and may express the opinion of the writer. This article is not be taken as personalised financial advice, as everyone’s situation is different. Please always seek advice from a financial adviser before making any decisions with your personal and/or business finances.
