If you think you’re ready to purchase your next home, the first step is making sure you’ve got all the tools needed to secure your ideal property. One of these has got to be getting a pre-approval. In this post, I am going to explain some helpful tips to give you the certainty of finance during your journey.

The home-buying journey is a stressful process in itself. You are managing your own expectations based on what you can achieve, negotiating with vendors, as well as communicating with your solicitor. Having to manage all external parties means you will see why it’s important to get a pre-approval. And you’ll quickly learn why it’s so important to do it as fast as possible before you start house hunting or making an offer on a property. 

Why a Pre-Approval is Crucial

So why is doing this early on crucial to the process? There are three main reasons.

1. A Pre-approval provides a clear guide on the purchase price 

As you are looking for your next home, you can easily become swept up with excitement. Falling in love with a property that is too expensive can lead to disappointment or putting yourself in a position where you are unable to make the loan repayments. 

Having a pre-approval is a great indication from the lender that you are eligible for a home loan, and it gives you a clear property budget to start house hunting. 

2. A Pre-approval saves time and lets you move quickly 

Once you have found a house you want, the next step is minimising the risk of losing out on the deal because you are waiting on getting your finances in order. 

Getting pre-approved early on means you can move forward by making a serious offer to the vendor and gives you confidence that your loan can be organised quickly. It also signifies to the vendor you are a serious buyer and allows you to negotiate some terms in a position of strength. 

It also ensures everything about you and your income is checked off in advance, so all you need to worry about from there is finding the perfect property. 

3. A Pre-approval protects your deposit 

You can easily lose your hard-earned deposit if the lender won’t approve the loan amount you desire to complete your purchase.  

A pre-approval can give you a financial safeguard in two ways: 

  • Offering a holding deposit only (which is 0.25% of the purchase price) – this will provide you up to 10 business days to move the pre-approval to Formal Approval. In the event something does NOT go your way, then you risk only losing the holding deposit, rather than 5 to 10% of the deposit. 
  • Protecting you when participating in an auction – if you’re buying at auction, it is particularly important you have a pre-approval because the deposit you pay at auction is not refundable. This means once the hammer goes down, you are locked into the purchase and hence why certainty of a pre-approval can save the day.  

Two Types of Pre-Approvals

From there, you’ll need to be fully aware of the two TYPES of pre-approvals you can choose from: 

  • System generated approval 
  • Fully assessed approval 

System Generated Approval

A system generated approval offers a much faster response, as the system approves the loan based on the information entered into the database.  

This approval still requires a full loan submission but the documents provided will NOT be assessed by the lender’s credit assessor until the loan moves to Unconditional Approval. 

This method can be deemed a little more risky or unreliable, as there has been no human intervention up until this point, and when it does it’s likely there’ll be more conditions to satisfy in order to get Unconditional Approval.      

However, if the right due diligence has been completed on the file, then the risk is low for a system-generated approval.     

Fully Assessed Approval

In comparison, a Fully Assessed Approval is where a lender’s credit assessor will complete a full review of the loan submission, including supporting documents. Prior to offering a pre-approval, the assessor will ask all clarifying questions.     

Once they are satisfied with all the information provided, then the approval will be issued subject to valuation and contract of sale.   

This type of approval generally takes more time, as it shows the lender has invested extra time to assess your position.       

For a more complex client scenario and a deal which may be ‘out of the box’, we would always recommend choosing a lender who can offer a full assessed approval to give you peace of mind. 

Finally, following the right set of tips can really ensure you secure that pre-approval when you need it most.  

Five Helpful Tips To Get Your Pre-Approval 

ONE – Provide all the right supporting documents in a timely manner to allow for an accurate assessment of your position. Complete a credit check in advance so we can see what we are working with. 

TWO – The location and type of property can affect a lender’s decision for your approval. For example, an apartment in a high density location may restrict your ability to borrow at 70% of the purchase price. Therefore, you should share details on the location and type of property in advance to ensure it’s acceptable for the lender. 

THREE – You may have a purchase price in mind, but for the pre-approval you should go for a higher range that is allowed by your situation. This way, even if you find a property that ticks all your boxes but is slightly out of your original purchase range, you know you can still afford it. 

FOUR – Remember that pre-approvals DO expire, so you need to act quickly. If your position or financials change, you’ll need to notify your broker immediately to see if the approval is still valid. 

FIVE – You need to stay within a pre-approval or be ready with extra savings to top up the bank loan if the property you purchase is ABOVE what your pre-approval allows. 

Speak to a Broker

Hopefully, this post has helped you understand what a pre-approval is and how it helps you purchase your next home.  

If you have any questions or comments on this topic, you are more than welcome to get in touch with me () or anyone in our broking team.

For more tips on getting your next home, please stay tuned or head to our Youtube channel – “The Next Home Series