What is Pre-approval? Know its Importance
Is buying a new home your next big financial decision? Are you planning to own a place of your own? If yes, buying a new home is not as simple as it looks and is certainly not an easy step to take. You will be spending your entire hard-earned savings and most probably your entire life-income yield on the mortgage repayments. Surely, it is a hard call to make, and in any case, if you are not careful and rational about your decision, you might suffer financially in the long run.
If you are serious about mortgage purchases, the mind mapping of this entire journey is quintessential. From assessing your borrowing capacity to getting a pre-approval, mortgage owning procedure is tricky. This is why knowing each step of the process involved and its importance is crucial.
What is pre-approval?
Pre-approval or principle approval is basically an approval letter from the lenders regarding your ability to borrow the loan amount for yourself. Either you are purchasing a fully detached home or an apartment, pre-approval gives you a certain picture regarding the type and amount which you can borrow beforehand. However, pre-approval doesn’t mean you are fully approved for the loan and neither of these parties has any obligation to it.
What does pre-approval require?
The lender goes through your entire financial and legal aspects before approving your loan application. Banks consider certain qualification criteria before proceeding for the pre-approval processes, they are:
- Employment history and present status
- Borrower’s earnings and expenditures
- Assets and liabilities
- Security details (in case of the second home buyer)
- Borrower’s credit history
- Debt to income ratio
- Gift letter
- Driver license or Australian passport
When should you apply to get pre-approved?
If you already have an approximate idea of your borrowing capacity, price range and the areas you’re looking for, you can proceed to property searching. Once you’ve completed your initial research and are serious about purchasing, it’s time for you to apply for pre-approval.
Why should you get a pre-approval?
Getting pre-approval gives you a clear picture of what you can afford and what you cannot due to which you’ll have a bargaining power while negotiating for property purchase as the vendor’s party won’t have to risk whether the borrower is eligible for a loan or not. It helps make your property purchase journey an easier one.
Pre-approval also helps you identify credit issues (if any) and allows us to fix them before you head on for your home purchase. Early pre-approval will also allow you to have some time to save money for down payments and closing costs.
With your pre-approval, closing a deal becomes easier and comparatively quicker.
There will be no confusion regarding your purchase ability and in turn, you can make wiser decisions in your property search.
How long does the pre-approval last?
Generally, a mortgage pre-approval lasts for 90 days but it varies from lender to lender. However, it does have an expiration date as your credit and financial status may vary with the time.
For you to get a new pre-approval, you will need to submit your new financial documents and credit score.
What if you take pre-approval from multiple lenders?
Every Pre-approval that you apply for is recorded on your credit file. Going through multiple lenders for pre-approval can hurt your credit history. Borrower’s request for pre-approval often counts as “hard inquiries” by the lenders.
Your pre-approval history is inquired by your lenders while checking your credit score. They will be looking at:
- The inquiry date
- The credit provider
- The credit amount you applied for
- The credit amount you applied for
- The reference number
How to arrange pre-approval when upgrading a property?
When upgrading your property, you must first decide on your circumstances before having your loan procurement pre-approved. You can either sell your current property and buy the new one or buy a second property and sell the first one within 6-12 months. If the circumstances permit, you can also sell your existing property and buy a second one simultaneously. No matter what your situation is, you need to have your finance pre-approved even before you start looking for your second property.
Often, these circumstances involve more than one transaction and huge paperwork through the transaction process. Due to the complexity involved in the loan procedure, having an experienced mortgage broker handling your transaction process saves you a lot of time and effort while minimizing any paperwork disaster that might come forth. Ask your mortgage broker to evaluate your situation and get pre-approval for your property. If you need our assistance, CONTACT one of our brokers.