One of the most common questions I am asked as a Mortgage Broker is: “Should I get pre-approval with a lender before I start shopping for a home?” The answer is definitely yes, but there are a few things you should be aware of before you go out and sign a contract to buy a house thinking that your finance is already approved by the Bank.
What is the benefit of getting pre-approval?
There are several benefits to getting a broker to organise a pre-approval before you make an offer to buy a home.
- The pre-approval will provide you with some security that, assuming your financial position remains unchanged, the lender is comfortable that you can afford the loan required and you would meet their lending criteria.
- You will be aware of any conditions that you would be required to meet to obtain final approval, such as needing to reduce or cancel existing credit cards or buy-now-pay-later accounts so you can prepare to meet these conditions.
- You will know your limits in relation to the purchase price, which is especially relevant should you be looking to buy a home at auction, and all of the costs associated with buying a home to ensure you will be able to complete the property settlement.
- If you apply using a mortgage broker they will complete research on your behalf, taking into your account your requirements and the product features you would like to have, to determine which lender and product would be the most suitable to lodge an application with.
Is a pre-approval a guarantee that my loan application will be approved?
Although obtaining pre-approval with a lender provides you with some comfort that you will be approved should you buy a home within the conditions of the pre-approval, this is not a 100% guarantee of final finance approval. There are several issues that can cause a lender to back away from any pre-approval commitment. Some of the most common are:
- Changes in interest rates which may increase the required loan repayments, making the pre-approval amount less affordable.
- If a property valuation has to be completed any shortfalls in the valuation may impact on the lender’s pre-approval commitment.
- Any new loans or other access to credit that you may take out between getting the pre-approval and buying a property can alter your eligibility for finance approval.
- Changes to your income/employment status.
How do I make sure that my pre-approval will turn into final approval?
Working with a mortgage broker can ensure you have the best chance to turn your pre-approval into a final approval. They can work with you and the lenders to cover any potential hurdles in getting the pre-approval, or if your situation changes they can determine whether this will have any impact on your final approval before you buy a home.
Pre-approvals are usually only valid for 90 days, so a broker will also assist with keeping your pre-approval current by providing updated information to the lender so they can re-assess and extend the pre-approval if you are still eligible.
It is also important to note that getting pre-approval with a lender does not lock you in to that lender. With volatile interest rates and changes to lending policies occurring, a mortgage broker will regularly review whether the lender is offering the most suitable product to meet their client’s needs. Remember, a mortgage broker is bound by their Best Interest Duty to always put their client’s interest first, so you can be assured that they will be recommending the lender and product that best suits your needs.
At SHL Finance we would welcome the opportunity to discuss your potential Home Loan requirements with you. Please call Reece Droscher on 0478 021 757 and he can help you navigate your way through the Home Lending market to realise your financial goals.
Reece Droscher
Director
Mobile 0478 021 757
Email reece@shlfinance.com.au
www.shlfinance.com.au
