Explainer: Home loan pre-approval

For those getting ready to stride into the world of home ownership, the uncertainties of pre-approval can cast a shadow of doubt over an otherwise exciting time. When is it necessary? How long does it last? And what does it involve, exactly?

Pre-approval is a lender’s assessment of your likelihood of being approved for an otherwise suitable loan. The appraisal is made on the basis of your ability to service a loan by looking into your living expenses and liabilities, your credit history, your employment circumstances and how often you have moved home or employment in the recent past.

As it is performed prior to a property being found and chosen, it does not take into account the particulars of a specific property and valuation, which is why uncertainties can arise.

Pre-approval is helpful for those who want to know how much they can borrow before attending open homes, and can be reassuring for new borrowers.

When someone gets pre-approval they can start looking at properties knowing how much they can borrow. They know what their price range is. People take comfort in knowing that a lender has looked at their application to make sure it meets policy.

Pre-approvals are usually valid for up to 90 days but, depending on the lender, may be renewed to allow more time to find a property.

It is very important to note that a pre-approval is not a guaranteed loan. It is your potential lender’s way of signalling how much they expect to lend you. This may change on your official application.

Policies are changing day-to-day, week-to-week at the moment.

Another thing that may cause a lender to decline your loan application after pre-approval is a change to your pre-approval circumstances.

Before formally approving the homeloan the bank will make sure the applicant has not gone and got another credit card or car lease, or any other debt that may affect their income and serviceability

Your pre-approval will also usually be conditional on a property valuation. If your lender does not deem the property a marketable asset, they may not approve a loan.

The bank checks that it is a readily saleable property. It’s the biggest thing to make sure the actual security itself is acceptable.

Potential borrowers need to be wary of the changes that can affect their ability to take out a loan, regardless of pre-approval figures, to ensure they don’t overcommit without a guaranteed source of funding.

Pre-approval is not a guarantee but is a very useful tool for anyone looking for a property.

RBA CASH RATE UNCHANGED

The Reserve Bank of Australia (RBA) has decided to keep the cash rate at 1.5 per cent for the 25th consecutive month of RBA announcements

MORE TIGHTENING TO INTEREST ONLY LOAN

Earlier this year, the regulator announced new curbs to interest-only lending. Regulator’s focus on tightening of credit regulations on interest-only loans is a welcome change as it has encouraged more responsible lending by banks and other institutions to not place customers under undue stress and thus end up paying more on their home loans, particularly if their loan is an owner-occupied loan.

HOW TO NEGOTIATE IN A SOFTER HOUSING MARKET

Whatever the state of the market, every negotiation is based on the same premise – vendors want to receive the highest possible price while buyers want to pay as little as possible. Both, however, need to give careful thought to how they approach a negotiation when the market is in decline.

TIPS FOR VENDOR’S :

Be realistic ,Take offers seriously AND Be ready to act.

TIPS FOR BUYER’S :

Do your research – be clear about a realistic market price.

Let the agent know if you’re interested in a property

Call now on 1300 30 6767 or enquire through the form.