Pre-approval, how it can help you with the buying process
Are you thinking of homeownership and trying to get yourself sorted and wondering whether now is the right time to apply for a pre-approval?
Well, before you do apply for a pre-approval, let's have a quick look if there's anything extra you need to know.
Firstly, what is a pre-approval?
A loan pre-approval is when a lender has agreed to lend you a certain loan amount, but where certain conditions need to be met before they will grant you a "formal approval".
You heard correctly, there are conditions that still need to be met before your loan is guaranteed to provide you with the funds to complete the purchase.
Why should you get a pre-approval?
I must say that visiting display homes to research your dream home is an extremely rewarding exercise. When you look at the décor, the different rooms and imagining how you would invite your friends and family over to have dinner parties bring a real sense of joy.
However, at what one point you will asking yourself questions such as:
- “Can I afford to buy this property?”
- “How much can I borrow?”
- "What are my repayments?”
This is where a pre-approval will offer you the clarity of whether the lender may offer you the required funds to buy the home.
Assuming that your pre-approval is granted, a formal approval will usually require a valuation on the property you plan to purchase as well as the contract of sale to ensure all the information is acceptable to the lender.
Are there any drawbacks?
Although there is much to gain from being prepared, being overly prepared can work against you. What I mean is that a pre-approval application will actually show up on your credit file as a loan enquiry. So, if you apply for a number of pre-approvals, with different lenders, each will show up as a loan enquiry - something the lenders don't like.
A few other important things I should mention:
· If your circumstances change, the lender will need to re-assess the application.
· It has an expiry date anywhere between three to six months
· The approval is conditional, meaning that your funds are not yet guaranteed.
Final thoughts before you go and apply for a pre-approval.
Keep in mind that a pre-approval will help you clarify your borrowing capacity and offer you greater confidence when you are looking to purchase a home.
It does not yet guarantee you with the funds to settle on the property until you receive a formal approval.
A pre-approval application will show up on your credit file.
Although it is a very straight forward process, there are just a few considerations you need to be mindful of before you finally apply for a pre-approval to secure your dream home.
Chi Kiet Chau