Your Guide To Getting a Pre-Approved Home Loan Ready
Is this your year to get into the housing market? After a volatile first half of 2019, prices have started trending upwards and experts predict we could be in for another housing boom by 2021. So now could be the perfect time to build or buy a home that will hopefully appreciate in value over the coming years.
But before you sign on the dotted line, you need to get your finances in order. If you’re a first home buyer or if it’s been a while since you last purchased a property, here’s a helpful rundown of how to get your pre-approved home loan ready.
What Does ‘Pre-Approval’ Even Mean for Home Loans?
Pre-approval is simply a term used to describe how much money a bank or other lender is willing to give you for the purchase of a home. Also known as ‘conditional approval’, pre-approval should be your first step on the path to home ownership.
You can get pre-approved at your chosen lender’s or finance broker’s closest branch, or in many cases you can apply online with minimal paperwork required (depending on who you intend to borrow with).
It’s important to remember that while pre-approval will help streamline the buying process once you’ve found your dream home, it is not the same as an actual mortgage. That means that if your circumstances change or issues arise with the property then you may not be formally approved for the loan.
That’s why it’s important to understand the timeline of pre-approval to purchase so you aren’t taken by surprise when it’s time to formalise the crucial paperwork.
How do You Apply For Pre-Approval?
While it’s exciting to start this new chapter of your life, it can be equally stressful knowing that there’s so much to do before move-in day.
While applying for pre-approval is quite a straightforward process – whether you do it online or in-person – there are some steps you can take to help your application succeed:
- Take stock of your finances: Before visiting a lender, seek out your free credit report from a nationally recognised agency (Equifax, illion, and Experian are your options in Australia). This will outline your complete financial history over the past few years, including credit cards, defaults, bankruptcies and more. If your credit score isn’t great, that will lower your chances of getting pre-approval – so it pays to check your credit report early so you can fix it!
- Choose the loan type you want: A home loan isn’t a one-size-fits-all solution. There are a few different options at your disposal, and deciding on the right one for you could go a long way to getting your application approved. Do you want a fixed loan that will lock you into a set interest rate for one or more years? Or would you prefer to enjoy the current low interest rates and choose variable terms? And what about offset versus redraw? Ask your lender if you’re unsure how this could impact your finances and borrowing power.
- Get your information in order: Now it’s time to fill out the pre-approval paperwork for your lender. This will include all the basic verification information (name, age, address) as well as reviewing your credit report, financial situation and whether the loan you are applying for is appropriate for your current circumstances.
How Long Does Pre-Approval Usually Take?
Depending on your chosen lender, pre-approval can take anywhere from a few hours to several days. Online systems that use quick processes to approve or deny applications will likely give you an answer within a few hours – however, because these typically only take into account minimal information and don’t involve a qualified credit assessor, you may not be guaranteed the loan when it comes time to purchase.
On the other hand, more lengthy pre-approval assessments that involve the lender’s professional credit department (and include reviewing your full credit report) may take several days. The upside is that if all the information stays correct then you are more likely to see that pre-approval turn into an official loan when you’ve found your dream property.
Does Pre-Approval Guarantee You’ll Get The Loan?
Not necessarily. Pre-approval isn’t an iron-clad agreement that you will be accepted for the loan. Be aware that a few different factors can cause hiccups, such as: changes to your personal circumstances; new government regulations; the property becomes negatively valued; or the property’s condition changes.
3 Top Benefits of Getting a Pre-Approved Home Loan
- You know exactly what price you can afford: With pre-approval you have a set figure that shows how much you can spend on a home. This helps narrow down the price range and may even speed up the time to buy a property.
- You can move forward with a level of confidence : Pre-approval allows you to feel comfortable that the ground work has been done with pre-approval. It also shows the vendor and agent that you are serious about buying and have the paperwork to prove you can afford the property.
- Less paperwork: Once you are pre-approved you’ll already have done most of the legwork required to get the purchase over the line. It will also speed up finalising all the loan documents once your offer has been accepted.
That means no matter where you’re thinking about buying around Australia – such as in master-planned communities and developments like Brentwood Forest near Brisbane – you will be as financially prepared as possible to secure your dream home.
Content originated from AVID.