Do I need a home loan pre-approval?

March 24, 2015
Angela Kemp

When you’re looking at buying a property, it’s essential to know exactly how much you can afford to spend.  So what does a home loan pre-approval involve, and do you really need one?

‘A pre-approval is an indication from the bank that they are willing to lend you a certain amount of money, based on a pre-assessment of your individual situation.  It’s important to remember that a pre-approval is not a formal loan offer in any way, and is subject to conditions such as finding a property that is acceptable to the bank’, local Perth mortgage broker David Sims advises.

So how exactly does the pre-approval process work?  Check out the video below as Mortgage Choice chats to The West Real Estate program about applying for a home loan pre-approval:

 

So what are the pro’s and con’s of home loan pre-approvals?

Pro’s

Helps you establish a budget

With a pre-approval in hand, you can feel confident when looking at potential properties as you know exactly how much you can afford to spend.  It’s a handy document to have as it puts you in a stronger position when placing an offer on a property.

Essential for auction purchases

It’s vital to know how much you can afford to spend BEFORE attending an auction, as there is no cooling off period once your offer is accepted.  Auctions create a sense of urgency and competition, so it’s important to keep a cool head and stick to your budget. 

Get quick finance approval

If you already have a pre-approval in place with a lender, it can often be a quick turn-around to have your loan application formally approved once you’ve found your perfect property. 

Con’s 

Your application can still be declined

A pre-approval does not always mean that the bank will approve your loan, as it’s still subject to a full assessment by a credit officer.  For example the bank may deem the property you are purchasing to be unsuitable, or your circumstances may have changed since applying for pre-approval. 

Your pre-approval has an expiry date

A pre-approval is usually only valid for up to six months, so if you haven’t found a property in that time, you will need to renew your application.

Overall, a home loan pre-approval is great for establishing your budget and gives you confidence when making an offer to purchase a property.  However, it’s important to keep in mind that a pre-approval is subject to various conditions and is not a formal loan offer.

Ready to apply for your home loan pre-approval?  Contact your local Perth mortgage broker David Sims on 9277 9888 to book your appointment today.

Posted in: Home loans

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