What you didn’t know about home loan pre-approvals
Planning to purchase a property and want to ensure you’re putting your best foot forward in the home loan application process? Applying for pre-approval ahead of the house hunt may put you ahead of other potential buyers, but there are also some things you should consider before you apply.
Benefits of getting pre-approval
A pre-approval is essentially an indicator to the lender that you have your finances in order and that your home loan application fits the loan criteria. Though it’s not compulsory to have, it can be very useful in the property buying process, as it can give you an idea of your borrowing power and help you narrow down the properties based on the price range you can afford.
Securing pre-approval can also put in you in a superior negotiating position, demonstrating to the seller that you’re a genuine buyer and serious about making a purchase.
It’s not a formal approval
Remember, pre-approval is considered a conditional (or indicative) approval, it does not guarantee a formal approval from the lender. As your pre-approval is subject to conditions, there is still a possibility it can be withdrawn, which means the reliability of pre-approval is always something you should be aware of.
Did you know that there are two types of pre-approvals? Find out and understand the difference by checking out our partner, loans.com.au’s pre-approval guide to understand the pros and cons.
Savvy Tip: Get in touch with your mortgage broker or bank account manager to check how reliable your pre-approval is and what conditions are included.
Your pre-approval usually lasts 3 to 6 months. Most lenders have this expiration date due to the potential changes in your financial situation and movement in the property market.
Savvy Tip: Confirm with the lender on the expiry date of your pre-approval and whether extensions can be offered if you don’t find a property within that time.
Changes in your circumstances can affect your approval
If you change jobs or apply for further credit after you’ve received your home loan pre-approval, the lender will need to reassess your application, which can affect whether you’ll be formally approved for the loan.
Savvy Tip: Try not to make any drastic changes to your personal and financial situation during this timeframe, otherwise you’ll be requested to submit a new pre-approval application or worse even get declined on the home loan completely if you no longer meet the lender’s lending policy.
Your credit score can be impacted
During the pre-approval process, your personal and financial details will be required by the lender to assess your loan eligibility. A credit check may also be requested to gain access to your credit history and repayment information. This will leave a credit enquiry on your credit report and could have an impact on your credit score.
Read more on how pre-approvals affect your credit score.
Ready to start searching what home loan offers are in the market and apply for pre-approval?
If you’re looking to speak to an expert, you can request a free appointment with an eChoice mortgage expert today.