A common question from customers is that – what does it mean to get my loan application formally approved? What happens next? Once you have secured your dream property and signed the contract of sale (assuming that you already have a pre-approval and completed your due diligence), what happens next in order to move this to “formal approval”? After you get your formal approval, what else needs to happen to ensure that your finance is actually secured?
Getting “formal approval” means that the bank In this post, I will show you the five steps that will take you through to secure your loan approval.
1. Obtain the Contract of Sale and understand the conditions.
You should have a soft copy of your contract of sale once all parties have signed it, to share this with the bank. This document contains crucial information about the settlement of your purchase such as the purchase price, deposit paid and settlement date.
Don’t stress if you don’t have a copy. You can always ask your Solicitor to request the contract and review the conditions of purchase (such as the cooling off period or a longer settlement), so you can let the bank know. These conditions are important to setting the right deadlines. For example:
- Having a cooling off period allows you to have a valuation completed and if you have secured a pre-approval, it will give the bank sufficient time to issue Formal Approval and let you pay the remaining initial deposit with peace of mind.
- Having a longer settlement means you need to ensure the right timing of your loan documents being issued. Loan Documents do have an expiry date, and if you don’t sign and settle within that timeframe your loan will need to be re-assessed.
By notifying the bank of these conditions it will allow them to ensure the approval of the documents in a timely manner.
2. Order the valuation
Once a copy of the exchanged contract of sale has been received, you can order a valuation of the property with the bank.
A valuation can take 2-3 business days, if not more depending on whether an inspection of the property is required. In most instances the delay is caused by the existing tenant of the property not giving access to the home, so you want to make sure the property agent has given the tenants notice in advance to be flexible with timing.
Due to possible valuation delays you want to ensure the valuation is ordered as soon as possible.
3. Update the loan amount and structure.
Now that you have the contract of sale and valuation has been completed, it’s likely that your loan needs to be updated. This is the perfect opportunity to think about whether the loan structure you have in place from the pre-approval is right for you.
There are things you should consider, such as:
i) have the interest rates changed since your pre-approval
ii) the loan structure between variable and fixed splits, especially if the rates have now changed.
In a rising interest rate market, have you considered locking in the fixed interest rate for 90 days by paying a fee?
Remember, you should think carefully about how you want the loan structured moving forward. Once Formal Approval has been issued, if you want to make changes, it can cause the bank to reassess your loan or sometimes a resubmission of your whole loan application.
4. Satisfy all outstanding conditions.
In addition to updating the loan amount, you should make sure that any outstanding conditions raised previously are satisfied. This can include:
- Updated income and liability statements – this will be required if your approval has been over 90 days
- Confirmation on account closures such as credit cards, car loans, HECS or Buy Now Pay Later facilities
- Letters of confirmation from Employers, Doctors or other banks
If there are conditions to be satisfied, you should always aim to have these satisfied as early as possible because again, it can take time to action these requests and obtain the relevant documentation
5. Submit Formal Approval request
Once you’ve gathered all the information and documents, you should summarise this to make it easy for the bank review and issue Formal approval.
When Formal Approval has been issued – congratulations! But the preparation doesn’t stop here. As the bank is preparing for your loan documents, there will be some additional steps that needs to be completed depending on your bank. This can include:
- Opening up a bank account for the offset or home loan repayments
- ID certification
- Getting valid Building Insurance for your home
You won’t need to worry if you have a trusted Broker, as they will outline these steps with detailed instructions to help you with a smooth settlement process.
Speak to a Broker
We hope this has been helpful to you. If you have any questions or comments on this topic, you are more than welcome to get in touch with our broking team.
For more tips on getting your next home, please stay tuned or head to our Youtube channel – “The Next Home Series“