If you’re considering buying a new home or a property as an investment, then it is worthwhile discussing your home loan options with your lender or mortgage broker before you start searching for a property. This will allow you to save yourself time and frustration in the long-run.
Discussing your options before you start searching for a property enables you to avoid disappointment, especially if you have your heart set on a particular property and then find that you cannot get finance. The most common advantages of home loan pre-approval are as follows:
- Understanding your financial situation – You get a clearer picture of your financial situation before you think about committing to buying a property.
- Credit rating checks – You are able to identify any problems with your credit rating and to fix these before you apply for a final home loan.
- Determining your borrowing capacity – You are able to ascertain your borrowing capacity and this can possibly give you leverage when it comes to negotiating with vendors or during an auction.
- Sound bidding at auctions – If you’re going to attend an auction, pre-approval allows you to know just how high you can bid. Knowing your upper limit will prevent you from overspending and possibly putting yourself in a difficult financial position.
- Lengthy pre-approval – Pre-approval is usually valid for 3 to 6-months from the time of approval. This should give you more than enough time to find a suitable property. If you haven’t found a property after this time, you’ll need to re-apply.
- Easier final home loan approval – Final home loan is often simpler and much faster if you have home loan pre-approval in place. This is because many of the preliminary financial checks have been carried out.
- No Fees – Home loan pre-approval is usually free. The only time you pay for a home loan application is when you are officially lodging a home loan contract with a specific lender.
What You Need to Do After You’ve Been Granted Pre-Approval
If you’ve been granted home loan pre-approval then you’ll still need to put ‘subject to finance’ on any home loan contract you sign, as final home loan approval has not been granted. This will give you a ‘get out’ clause if you find that you are unable to finance for a particular property approved. You also need to notify your lender or mortgage broker of any changes to your financial situation during you pre-approval stage, especially if your income fluctuates. Failure to disclose changes could put you under financial stress at a later date. Disclosing changes allows lenders and mortgage brokers to recalculate your borrowing capacity, which can work in your favour if you’re earning more.