Buying a home can be challenging because it takes a lot of time, effort and money, of course, before getting your ideal house. But on top of all that, when purchasing a home, you should consider having a mortgage pre-approval. In doing so, you will get an edge over your rivals or those who are also potential buyers.
While a pre-approval is not a requirement in the home buying process, getting one will be advantageous as you can be better with the seller. In addition, having a mortgage pre-approval will allow you to determine whether or not you have the capacity to loan your target amount.
If it's your first time hearing the terms mortgage pre-approval, continue reading. In this post, you will learn its basics so that you can use them to your advantage when you purchase your desired home.
What Does a Mortgage Pre-Approval Mean?
A mortgage pre-approval refers to the process of knowing the amount of money you may borrow to purchase a house. However, it is vital to understand that a pre-approval doesn't guarantee anything from your lender. It is not the same as how a formal approval from either a bank or lender works.
What you can get from a mortgage pre-approval will indicate if your lender can loan you the money. There is, of course, an assessment as to how much you can borrow, mainly based on your borrowing capacity and credit history.
In the mortgage pre-approval process, it is also crucial to note that banks have no more obligation to lend you money if you are ready to purchase a property. Hence, it's a different story for such a case. You will have to undergo a separate approval and application process before you become eligible to loan a particular amount.
How Do Lenders Process a Mortgage Pre-Approval?
Lenders process a mortgage pre-approval by looking at your assets, credit score and income. They look into your credit score to know what loans you are eligible for, how much to borrow and what interest rates apply to you.
Besides measuring your financial capacity and health, a credit report also is a tool to verify your identity. So, make sure to present to your lenders your credit report. In addition, as a borrower, you should provide your chosen lender with access to your credit score.
What Are the Two Kinds of Credit Enquiries?
The two kinds of credit enquiries are hard and soft, and both are different as to how each impacts credit scores.
A hard credit enquiry typically occurs when you apply for something. It may, unfortunately, lower your credit score if it shows up on your credit report. An example of this is the mortgage pre-approval and other checks like car loans, retail credit and credit card applications.
On the other hand, soft credit enquiries have no impact on credit scores. They are only visible on consumer disclosures. Examples are those checks done by employers, yourself or insurance companies.
If you need guidance with getting a mortgage pre-approval, you may always look for the best mortgage brokers in Australia. By working with the experts, they will guide you to make the right choices so that you can work your way towards solid financial health.
In particular, you can book a consultation with us at Wealthy You. As the leading and the best mortgage broker in Sydney, we offer various mortgage solutions to meet your specific financial needs. Let’s discuss your situation—book an appointment today.