April 19, 2017
You may have noticed, there are mixed feelings among mortgage brokers when it comes to the value of getting pre-approved for your home loan. Are pre-approvals a waste of time, an unnecessary credit enquiry, or can they be used to your advantage, making your home buying experience that much easier?
You can benefit from getting a pre-approval when you are shopping for properties. However, in order to get the most out of yours, make sure you fully understand what it is and isn’t – and how it should be used to your advantage.
When you receive your pre-approval, keep in mind you have not received an official guarantee from your lender. What you do have is a number that you may be eligible to borrow – assuming your financial situation doesn’t change while house shopping or your lender’s criteria for a pre-approval doesn’t significantly differ from the full loan application requirements.
There will always be a key distinction in the approval process for a pre-approval vs. your actual home loan the property! When a lender offers you a loan, first someone has to do a proper valuation of the home you are interested in to ensure it is worthy of being held as security against your mortgage.
A pre-approval is an indicator of how much you will be approved for. It’s a lot like a trial run for your official mortgage. As such, it comes with certain advantages:
- Speeds up the process. It forces you to prepare your required documentation and to organise your finances, which means, when the pressure’s on to attain financing for your ideal home you just found, you’re already ready to apply.
- Increases your credibility. Putting the effort in to get pre-approved demonstrates that you are a serious buyer. This means sellers are going to take your offer more seriously than someone who’s not pre-approved.
- Simplifies your search. The greatest benefit – you have a figure that is as close to accurate as can be to let you know how much you’ll probably be approved for. So, you can spend your time looking only at properties that fall within your budget.
Still, pre-approvals are not all cake and roses. First, your figure could still differ from the actual loan you get approved for. When this happens, instead of clarifying your budget, you’re going to be left confused, and possibly disappointed if you aren’t able to attain financing for a property that you believed to be within your budget.
This is possible because sometimes lenders look at different information for a pre-approval. They may not be as stringent in pouring over your financial records and credit history as for the official loan application, leading to surprises when you apply for a loan for your chosen property.
Also, your financial situation could change. After all, it can take several months before you find the home you want to purchase.
In order to get the most out of your pre-approval, there are several steps you can take. First, try to find a lender that does look at your credit history so you can get a number that is more likely to sync with your approved amount. Second, be extremely accurate and honest in the pre-approval process so your lender can come up with a more realistic pre-approved amount. Also, keep all your information up-to-date so you still have everything ready for your actual loan application.
And finally, you don’t want to get pre-approvals from multiple lenders. Each one may appear as an enquiry into your credit. Having too many enquiries from different lenders is likely to negatively affect your credit rating.
Pre-approvals can certainly be used to your advantage. Don’t use your pre-approved amount to commit to a purchase as they aren’t a commitment from your lender to you. But, do use them to walk into the home buying process with more insight and preparation to help you get the right home loan for you and your dream home.
Written by Refinancing.com.au
Refinancing.com.au is an end-to-end service that helps people refinance their home loan. We empower you to search for your home loan, and choose the process that suits you.
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