Also known as a conditional approval or an approval in principle (AIP), a home loan pre-approval is a formal notice from your lender that you are able to borrow up to a set value of money to help purchase a property. Find out how getting a pre-approval can benefit you when you are looking to buy a new home.
About Home Loan Pre-Approvals
- Usually valid for 3 months, depending on your lender
- Can be extended or renewed if you are having trouble finding a property during those 3 months
A pre-approval does not guarantee that you will receive financial aid. The pre-approval is subject to you meeting the terms and conditions that you agree on. This means that if your situation changes, you may not be eligible for your pre-approval anymore and you will not receive the financial aid.
Like home loans, not all pre-approvals are the same. In order to get a reliable pre-approval, you will need to file a full loan application (not including the property/security). Keep in mind that applying for a home loan is likely to be out on your credit file, so applying for multiple pre-approvals can potentially do you more harm than good. If you’re unsure of what to do or how to find a good pre-approval, a broker may be able to provide you with insight and helpful advice.
Reasons to Get a Pre-Approval
Setting Budget Limits
According to SCCU, by getting a pre-approval, you will know how much money you will be able to borrow and set a budget. This can save you time and disappointment when looking at properties that you wouldn’t have been able to afford if you didn’t know your maximum budget
Reinforce Your Offer
In a competitive market, the smallest details can dictate who will win in the end. If you make the same subject to finance offer as someone else, having a pre-approval to show the seller may be what puts you above your competitors.
Create Negotiation Opportunities
Not only will a pre-approval strengthen your offer compared to if you didn’t have one, it can also allow you to negotiate the price in some situations. If the seller is desperate or eager to sell, there is a chance that they will accept a lower offer if they know you have the money set up to buy their property.
Post Offer Acceptance Efficiency
Getting your home loan approved can be a time intensive process. Getting a pre-approval can reduce the amount of time the application process takes when your offer has been accepted. This can be vitality in settlements with strict timeframes, so it’s better to be safe than sorry.
Show That You’re Serious
There are some real estate agents that restrict private viewings to people they select in order to save time. Having a pre-approval will show them that you have the potential to purchase the property, and that you are organised and serious about buying. This greatly increases your chances of making an offer.