If a client of The 500 Group is thinking of purchasing a property, we encourage them to get a Home Loan Pre-Approval.
This is particularly important in an environment where property values have been softening and the time needed to get finance approved has increased.
A Pre-Approval is not a guarantee the finance will ultimately be provided by the Lender, but it can none the less:
- Provide peace of mind
- Speed up the final approval process once your offer has been accepted
- Confirms that you can service the proposed loan amount
A Home Loan Pre-Approval is a “Conditional Approval” or “Approval in Principle”.
It is an indication by a Lender that, subject to certain conditions being satisfied, and based on the information provided, they will extend finance up to a particular level and on what terms.
Formal Approval is still required, once you have made an offer on the property you wish to purchase.
Pre-Approvals have an expiry of 90 days up to 6 months depending on the Lender.
There are two types of Pre-Approvals:
- System Generated
- Full Assessment
System Generated are usually online and Pre-Approval is normally forthcoming within a few hours.
However, they are not something that we recommend to our clients as it still requires full assessment.
Full Assessment on the other hand, is what we recommend to our clients. Whilst it involves more work, is a far more robust process, less likely to result in disappointment, delays and frustration down the track!
Unlike a system generated Pre-Approval, with a Full Assessment you know that a Credit Assessor has reviewed, analysed and verified your information.
Seeking a Home Loan Pre-Approval offers several benefits including:
- You know what Lenders are prepared to lend and on what terms
- It will provide peace of mind and put you into a stronger negotiating position
Once you have made an offer, providing there have been no material changes to your circumstances and the property is acceptable to the Lender – it makes formal approval faster!
Before seeking a Home Loan Pre-Approval, we recommend our clients do their research to:
- Understand the areas in which they are looking to buy
- The properties available
- At what price
(When you have chosen area, we can provide you with Property Reports that provide in-depth overview of the area and even specific properties).
Planning and preparation are the key to getting a Home Loan Pre-Approval with a minimum of fuss and delay.
To enable Lenders to consider your application you will need to provide:
- Group Certificates for the past two years
- Two recent Payslips
- A breakdown of income, salary, overtime, commissions, allowances and bonuses – with supporting evidence of same
- A copy of Bank Statements confirming crediting of salary
- Last three months Bank and Credit Card Statements
- Statements for any other liabilities – car loans, store cards, HELP debt etc
- Statement of Assets and Liabilities (include Credit Cards limits and balance, Loan details – balance & monthly repayments, Hire Purchase details etc.)
If you are self-employed, you will need to provide:
- Business, Trust, & Personal Tax Returns for the last two years
- Tax Office Notice of Assessment for the past two years
- For Trusts, a copy of the Trust Deed to confirm distributions
Significant variances of income in the past, or future years, will need explanation.
As part of the Home Loan Pre-Approval process, you will need to create a budget to show you can service the loan you are seeking.
When doing this, it is important to take care to ensure it includes all your expenses.
Banks now compare what you say you spend – with the “lived reality” shown in your Bank and Credit Statements for the past 3 to 6 months.
You can find out more about this process by reading my post – Home Loan Eligibility Criteria – Monthly Expenses!
A Home Loan Pre-Approval offers many advantages however it is important to be mindful that:
The property you purchase needs to be acceptable to the Lender (Generally Banks don’t favour serviced apartments, student accommodation, apartments less than 40 m2.)
If your circumstances change (additional debt, expenses, employment) before formal approval, the extent to which the Lender will assist may change
Should interest rates increase, or the property market materially change, this may influence how much the Lender is prepared to advance
It is not wise to seek multiple Pre-Approvals, as this can impact your Credit Rating!
As a Finance Broker, I can help you understand the options and navigate the complexity associated with Home Finance.
This not only includes a great rate from our panel of Lenders (which includes the major Banks) but also other elements such as:
- Loan redraws and costs
- Fixed vs variable rates
- Offset Accounts
- Split Loan Facilities
- And more
If you are thinking about purchasing a property, and would like to learn more about Home Loan Pre-Approvals, call me on 0433 210 353