For those getting ready to stride into the world of home ownership, the uncertainties of pre-approval can cast a shadow of doubt over an otherwise exciting time. When is it necessary? How long does it last? And what does it involve, exactly?
Pre-approval is a lender’s assessment of your likelihood of being approved for an otherwise suitable loan. The appraisal is made on the basis of your ability to service a loan by looking into your living expenses and liabilities, your credit history, your employment circumstances and how often you have moved home or employment in the recent past.
As it is performed prior to a property being found and chosen, it does not take into account the particulars of a specific property and valuation, which is why uncertainties can arise. Pre-approval are helpful for those who want to know how much they can borrow before attending open homes, and can be reassuring for new borrowers, the real estate agent (when signing a contract) and the seller of the property. When someone gets a pre-approval, they can start looking at properties knowing how much they can borrow. They know what their price range is and you can take comfort in knowing that a lender has looked at your application to make sure it meets policy.
Pre-approvals are usually valid for up to 90 days but, depending on the lender, may be renewed to allow more time to find a property.
It is very important to note that a pre-approval is not a guaranteed loan. It is your potential lender’s way of signalling how much they expect to lend you. This may change on your official application. Policies are changing day-to-day, week-to-week at the moment. However, for anybody with a conditional approval you are far more prepared as you have jumped the credit hurdle already. Another thing that may cause a lender to decline your loan application after pre-approval is a change to your pre-approval circumstances.
You need to make sure that you have not obtained another another credit card or car lease, or any other debt that may affect their income and serviceability. Your pre-approval will also usually be conditional on a property valuation. If your lender does not deem the property a marketable asset, they may not approve a loan. This is to ensure that it is a readily saleable property in the future. That’s the biggest thing. To make sure the actual security itself is acceptable.
