Ask Andrew - Demystifying Pre-approval - What is it and is it for me?

September 21, 2015
Rachel Perry

Demystifying Pre-approval - What is it and is it for me?

There are a number of stages, or milestones, to move through when applying for a loan as I have discussed in a previous blog.

  • Submission
  • Conditional Approval
  • Unconditional Approval
  • Settlement

So where does a pre-approval fit into this mix?

A pre-approval functions essentially as a conditional approval. As such, there are a number of things that the lender will need from you to allow an unconditional approval to be granted once you have found a property. These conditions will always include a satisfactory valuation which will look at dollar value compared to what you have paid as well as the properties location and condition.

Why get a Pre-approval?

There are five good reasons to consider loan pre-approval.

  1. A clear spending limit - Loan pre-approval tells you how much you can borrow, so you cna focus on properties wihtin your borrowing limit.
  2. Financial protection - Loan pre-approval helps you make an offer or pay a deposit on a property, knowing the amoutn of finance you're likely able to secure to complete the purchase.
  3. Extra negotiating power - Loan pre-approval tells vendors you are a serious buyer and in a position to act quickly. This can give you extra clout for price negotiations.
  4. Bid with confidence at auction - If you are buying at auction, pre-approval is a must-have. It lets you bid with confidence up to your approved loan limit.
  5. It costs nothing - Loan application and establishment fees don't apply until you are formally approved for a loan.


What to consider....

Pre-approvals are generally valid for up to 90 days. Depending on when during this time you find a property, it may fall outside the acceptable limits for age of payslips or other income evidence. As a result, it is possible that the lender may request updated versions at that time.

A pre-approval is not a formal offer of finance. This aspect of pre-approvals is confusing to many people. Keep in mind, if your circumstances change between your application for pre-approval and when you find a property, your pre-approval may be withdrawn by the lender. 


Expert Advice at no cost to you

As your local Mortgage Choice home loan expert, I can give you access to a wide choice of lenders, including the major banks. I understand the loan pre-approval requirements of these lenders, which will make it quicker and easier for your to apply for pre-approval. I can also tke you through the pitfalls and how we might be able to avoid these. Best of all, there is no charge to you for my home loan service because the lender pays me after your loan settles.

For more information on pre-approvls or any aspect of the lending process, just 'Ask Andrew' by completing the contact form at hte top right of this page, or call Andrew on 02 9401 9244 or 0412 498 872.

Posted in: Home loans

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