Affording the home of your dreams often means having to secure a loan. You should think about applying for a home loan pre-approval to get started with your property acquisition journey. This step is necessary to ensure that you fit your chosen lender’s criteria and make your home buying process more convenient. Learn more about pre-approval and its importance through this guide.
What Are the Benefits of Getting a Pre-approval?
A pre-approval is a vital step in purchasing a new home. Although it is not required in the home buying process, it can give you an edge at auctions or private sales.
The truth is most people at open houses or auctions aren’t exactly looking to buy a property. Often, they are just getting a sense of the market. By getting a pre-approval, you show vendors and real estate agents that you are serious about buying. This will give you an edge when negotiating for houses sold through private sales and boost your negotiating power.
A pre-approval also lets you know where you stand and prevent being the highest bidder in auctions for a property you cannot afford. Since you know your budget, you can save time, money, and effort.
Does a Pre-approval Guarantee a Home Loan Approval?
Many people assume that getting a pre-approval means being granted a home loan application, but that is not the case. Remember that a home loan approval is very different from a pre-approval. Therefore, your lender is not obligated to approve your home loan application just because you have a pre-approval. Here are the reasons why a pre-approval might not help you secure a home loan:
Your financial status changes
If you are in the middle of a drastic career change or a life-altering event, like having a new baby or getting married, this can impact your chances of getting a home loan approval. Any situation that can alter your financial standing can make your lender re-assess your application.
You are planning to buy a risky property
Banks have policies about the type of properties you can buy. Expect that your chances of getting a home loan approved to be minimised if you plan to buy a high-risk home, like a house in a bushfire-prone area or an inner-city apartment. Prevent being declined by sticking to standard residential homes instead. If you are unsure, consider consulting versatile mortgage brokers to learn more about the policies.
The lender’s insurance provider rejects your application
Paying for lenders’ mortgage insurance (LMI) is needed if your loan amounts to more than 80 per cent of your property’s value. This application requires the approval of the lender’s mortgage insurer. Unfortunately, the insurance provider might reject your application. To increase your chances of getting your home loan approved, save enough for the deposit.
How Long Does a Loan Pre-approval Last?
Most banks and lenders offer pre-approval that usually lasts for 60-90 days. It seems long enough, but this period is actually short if you are having trouble finding the right home. You will have to re-apply for another pre-approval if you fail to search for the perfect property.
Buying a home can be exciting, but the process involved, including applying for a pre-approval, can be tricky and overwhelming. This is particularly true if you are a first-time homebuyer. By keeping the information above in mind, you are likely to make your home buying experience hassle-free.
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