The value of a pre-approval when house hunting

It’s an age-old question when it comes to buying a property – Do you look for a property first or get your finance pre-approved?

If you are already house hunting, chances are, you will have a couple of properties that you want to inspect. It is an exciting experience and equally nerve-wracking as this will be one of your biggest investment you will make.

If you are looking for a property to buy or have put down a deposit without first understanding if you can afford to borrow it would be like putting a cart before the horse.

This is where going to a mortgage broker for a pre-approval will help because as part of their due diligence, they will work out:

• What you are trying to accomplish
• How much you need to borrow to buy your property
• Any fees associated with buying a property such as Stamp Duty
• Your monthly home loan repayment
• Your home loan structure (fixed vs. variable or a blended option)
• Which lender will give you the best outcome

In the current lending landscape, securing a home loan has gotten much more difficult than it has been in the past especially when different lenders have subtle nuances around their lending policies.

Finding out how much you can afford to borrow will help you better understand what property you should bid for.

The value of a pre-approval

Applying for a pre-approval does not lock you into that lender. A pre-approval means that the lender is comfortable that you can afford the requested loan amount based on their lending criteria, your current income, and ongoing expenses.

The pre-approval process will also help uncover any further requirements requested from the lender that will help with your final approval such as reducing your credit card limits, paying off your existing debt, satisfactory valuation, etc. This will give time to make any necessary changes and not be blindsided by the lender’s requests prior to final approval.

The pre-approval process:

1. Your broker will prepare an online application with the lender of your choice and request a set of supporting documents including identification, proof of income, savings and current debts (if any) from you.
2. Upon receipt of the application and supporting documents, the lender will assess your application to confirm if it is in line with their lending criteria.
3. Once the assessment is completed, the lender will confirm what is the maximum loan amount they are prepared to consider.
4. The lender will issue out a confirmation letter for your pre-approval along with any outstanding conditions that need to be satisfied prior to final approval.