Pre-approval is one of the first key things you need when you’re ready to buy a home. So what is it and what do you need to know?
Pre-approval is one of the first key things you need when you’re ready to buy a home. So what is it and what do you need to know? We’re here to explain.
Pre-approval for a home loan, also known as conditional approval, confirms how much you can borrow from your lender. It is conditional upon the property you wish to purchase being acceptable security, and your lender confirming your income and other information provided in your application.
Pre-approval gives you a clear budget for a new home and lets you know how much you can borrow from your lender. This helps you start your search looking at properties that are within your budget so you can be realistic, and begin thinking about what you can and can’t afford.
If you have pre-approval from a lender, this could put you in a good position when you go to open inspections and auctions, as real estate agents will know you’re a serious buyer who has their finances in order and is ready to make a decision.
For most lenders pre-approval is valid for 90 days, it can be extended however this will mean resupplying your income and expense information to your lender.
Pre-approval does not include approval for a specific property, some properties may not be considered acceptable by the lender and it’s important to consider these conditions in your property search. For example some lenders may not accept properties for the following reasons; the condition of the property is not livable, the suburb or postcode, or in the case of apartments the apartment could be too small.
If your financial situation changes after you have received pre-approval, your situation will need to be reassessed. This could be because you have changed jobs, had changes to your income, taken on a new credit card or had a major change in your life like a new baby. These factors could impact the amount you’re able to borrow from your lender.
Each time you apply for pre-approval this is treated like any other application for credit and will be added to your credit history, regardless of whether you are approved or rejected. If you have a large number of credit enquiries on your file over a short period, this could impact your credit score negatively. It’s best to keep your pre-approval enquiries to a minimum and ensure you have chosen your lender before you apply.
Once you’re ready to purchase your first home, it’s best to get in touch with a home loan specialist who can talk you through the pre-approval process and what you need to apply.