When you’re looking to buy a home it’s important to know how much you can borrow. That’s where pre-approval can help.
So, what is pre-approval, and should you get it?
Effectively a loan pre-approval shows what a lender will let you borrow based on your income, expenses and financial situation.
Bear in mind that pre-approval is not a total guarantee, it’s usually conditional on your personal circumstances not changing between your application and purchase.
It’s not essential to get pre-approval but it can make life much easier, because you then have a clear budget to work with when searching for your new home.
Reasons to get pre-approval:
1. You are able to concentrate on the properties that you can afford
By establishing a limit before you start looking for properties, you can concentrate your search on properties within your known price range.
2. It could make you a more attractive buyer
Pre-approval shows real estate agents and sellers that you’re a serious buyer who has their finances in order.
3. It can give you greater negotiating power
Sellers often want a quick sale and may be willing to accept a lower offer if a buyer already has their funds pre-approved and is ready to act.
4. It allows you to act quickly
Having pre-approval means you’ve already had your financial situation assessed by a lender, which can shorten the time it takes to finalise the purchase.
This can help put you ahead of the competition if there is strong demand for the property.
5. You can bid with confidence at auctions
Once the hammer falls the highest bidder is legally bound to buy the property, so it pays to be prepared.
Having pre-approval means you can bid confidently at auction knowing exactly what your price limit is.
6. It costs you nothing
Obtaining a pre-approval is an obligation-free service and shouldn’t cost you anything.
7. It can act as a financial safeguard
Whether you make an offer on a property, bid at auction or purchase off-the-plan, pre-approval can help you avoid making the costly mistake of paying a deposit only to find you cannot secure the finance to complete the purchase.
However, it’s important to remember pre-approval does not guarantee you’ll get a loan.
8. You can save money
If you go through a Smartline Adviser to secure a loan pre-approval, they’ll compare options from a wide variety of lenders, interest rates and fees to find a loan that works for you.
The savings from one lender to the next can be substantial over the life of your loan so it’s important to consider a range of options.
9. You’re not locked in
While pre-approval is a valuable step in your home buying journey, you’re under no obligation to take out the loan.
Generally, pre-approval is only valid for a set period, such as 90 days from application.
If your circumstances do change while you’re looking for a new home, you can have your pre-approval offer reassessed.
It’s worth noting that if you apply too often it can affect your credit history so it’s best to wait until your finances are in order and you’re serious about your property search.
10. You can be confident about your home buying journey
Buying a home will likely be one of the biggest purchases in your life, so it’s worth getting it right from the start.
Mortgage brokers can help you navigate the complexities of taking out a home loan.
Once you have pre-approval and have found your dream home, you’ll need to finalise your application and lodge a request for formal approval of the mortgage.
While you can go to the financial institutions directly, using your Smartline Mortgage Adviser makes the process simple.
How much can I borrow?
Try our Smartline borrowing calculator for a quick estimate of how much you may be able to borrow.
Our home loan repayment calculator will also help you work out your weekly, monthly or annual loan repayments.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.