A home loan pre-approval (also known as a conditional approval or approval in principal), gives you a formal indication from a lender that you’re able to borrow money to purchase a property up to a certain value.
- Usually valid for 3 months.
- Can be renewed/extended if finding a property is taking longer than expected.
- Pre-approval is not a guarantee of finance. The pre-approval will be subject to you meeting the required terms and conditions and if your situation or environment changes, finance may be declined.
- Not all pre-approvals are made equally. To get a reliable pre-approval, you’ll need to submit a full loan application less the property/security. Beware as applying for a home loan will likely lead to a credit note on your credit file, so be careful not to shop around and get multiple pre-approvals as this could potentially harm your credit file by adding multiple applications. Why not let a broker check for you?
5 reasons to get pre-approved
1.Know your budget
Getting pre-approved and learning the max loan amount you can borrow gives you a budget to work within. Now you won’t waste time and heartache looking at properties you might not have been able to afford in the first place.
2.Add strength to your offer
If you’re in a competitive market and you have made the same subject to finance offer as another person, then all other things being equal, having a written pre-approval will put you in a stronger position. This may be the difference to you getting the nod from the seller.
3.Increase your negotiating power
In addition to strengthening your offer when compared to buyers who haven’t taken this step, getting pre-approved may give you the upper hand when negotiating the price. If the seller is eager to sell, they may be more willing to accept a lower offer from someone who is financially capable of purchasing their home.
4.Save time post offer acceptance
Obtaining a home loan can be a lengthy process. Getting pre-approved ahead of time can shorten the full application process once an offer has been accepted. If the settlement timeframe is tight – this time saving can be crucial.
5.Get taken more seriously
Some real estate agents are time poor and may be reluctant to hold a private viewing. Having a pre-approval not only shows him or her you’ve got conditional approval to potentially purchase the property they’re selling, it also signals you’re organised and mean business. This will greatly increase your chances of getting through the door.