4 Things you need to know about pre-approved finance

Often when writing an offer, a buyer will inform the real estate agent that finance will not be a problem, or that they have “pre-approval”. This may be true, but it could indicate that the buyer is unsure of the amount they can actually borrow, and therefore offer, on the property. It is important to note that finance is likely either way, though if the buyer has pre-approval from a financial institution, this may be a strong indication of a forthcoming loan agreement. Nevertheless, pre-approval does not mean that finance will be unconditionally approved, so it is necessary to consider the following:

1) A pre-approval does not mean that a buyer can make a cash offer, as it is still subject to normal finance criteria and may still take as long for the bank to provide an unconditional finance approval.

2) A pre-approval is time limited (usually 3 months, but it may differ between banks).

3) A full credit check conducted by the credit department of a bank is required for pre-approval (this make take a few days). As a buyer, you can walk into some banks off the street. They will ask a couple of questions and provide you with a letter that most buyers falsely believe is a pre-approval. Some bank websites also have a feature within which you can check what you can borrow. These examples are vague indicators only and do not constitute a pre-approval, so always check the fine print.

4) A pre-approval will always be subject to a number of terms, such as your financial situation remaining the same and valuation.

In most cases, there is no need to have a pre-approval ready when buying a property, however for those working on a casual or part time basis, or for those returning from bankruptcy, securing a pre-approval is a very good idea, particularly for your own piece of mind. In any circumstance, it is always a good idea to know how much you can borrow, what the repayments will be, what kind of deposit is required and other notable details, before submitting an offer.

When consulting a bank or mortgage broker, make use of their mobile lender services. Meeting at your home means less of your time is wasted and the required list of documents, such as pay slips and proof of income, will be on hand.

Readers should always seek their own independent advice prior to making any decisions regarding property or finances.