You know that conversation you had with your local bank?
The one where you walked away from the appointment thinking you were pre-approved?
Well, we’re sorry to be the bearer of bad news. But there’s a fair chance you’re not as covered as you think you are.
Your pre-approval may not be a pre-approval after all
If you haven’t provided recent payslips or supporting documents and/or you haven’t signed a loan application, there’s a very good chance you don’t actually have a pre-approval in place.
The lender may have provided you with a guide as to what you could borrow – which can be quite useful if you’re at the start of the home buying process and trying to work out what type of properties you can afford.
However, if you’ve started house hunting or you’ve gone so far to register as a bidder at auction, a ‘rough guide to your borrowing capacity’ may not be enough.
Here’s why…
If you’re successful at auction, you need to sign the contract and legally commit to the purchase that same day.
After you’ve signed the contract – and toasted with the bubbly – it’s time to go back to the lender to ask them to Formal Approve your loan for this purchase.
But if you don’t have a pre-approval in place – and no-one has even looked at your application – you have no assurance at all, that you’ll be approved for the finance you need. And if you can’t get finance approved for this purchase, you’re potentially in a lot of trouble here because you’re at risk of losing 10% of the purchase price.
Not all pre-approvals are created equal
Another thing you need to consider here is that sometimes a lender may issue a system-based pre-approval. You may have provided documents and you may have also signed an application form, but this type of pre-approval is often issued without an assessment of your application occurring.
If your borrowing capacity is super strong, your income is consistent and permanent, you have a sizable deposit to contribute, and your credit file is clean, in the majority of cases this isn’t necessarily an issue.
However, if servicing is tight, there are unique circumstances surrounding your employment, you’re applying for loan with Lenders Mortgage Insurance (LMI) or there are things on your credit file a lender may question, a fully verified pre-approval may be a better option.
This type of pre-approval means an assessor has manually reviewed your application and supporting documents, has confirmed borrowing capacity is evident, has checked your application fits their specific lending policy and potentially also confirmed your application satisfies the policy of the mortgage insurer too.
Whilst a pre-approval does not offer a 100% guarantee that funding will be provided at the time you seek a Formally Approved loan, it’s the best you can do to provide confidence you’re *likely* to secure the loan you need for a purchase. Because any questions or issues the lender may have with your application will come to light at pre-approval stage, before you have legally committed to a purchase.
If you’d like to talk to our team about getting a pre-approval in place, you can get started here.
