The Importance Of Obtaining A
Home Loan Pre Approval
Obtaining a home loan pre approval prior to going out and purchasing a property can speed up the normally lengthy process which involves several procedures.
It takes a lot of time and effort searching for the right home in the best location possible.
Furthermore, the wide choice of financing options makes it difficult to select the right lender at the last moment to finance a home purchase.
Lenders also require extensive documentation as proof of income and ability to repay a home loan.
For this reason, a pre approval home loan confirmation is important in getting this lengthy process out of the way.
This allows a home buyer to concentrate on finding a suitable home, with the confidence that the desired level of financing will be secured.
What Pre-Approved Home Loans Involve
First, a lender will make a total credit assessment to determine your suitability for a home loan.
This will include confirming your income and all financial commitments.
This will establish your ability to repay your loan without difficulty. It will also speed up the home buying process by shortening the time required to arrange financing once an offer is made. A lender will examine details such as:
- Your employment history
- Your debts and other liabilities
- All your assets and properties
- Whether you are constructing or buying a home
- Your credit history with other lenders
Pre approved Home Loan Requirements
All mortgage lenders require essential documentation in order to
verify your credit worthiness. These will include:
- Proof of income, such as pay slips and bank statements
- Proof of mortgage down payment which will include bank statements showing sufficient funds to complete your purchase
- Price range of desired property
- Details of your expenditure, such as credit card bills, loan repayments, and monthly expenses
The relevant documentation will be presented together with a duly completed application.
Credit checks and other verification measures will then be done before your application is conditionally approved.
This will include cross checking employment details with your employer, and confirming your credit history with credit reporting agencies.
Lenders will also undertake other checks to ensure that your financial stability is not affected by changes in your life or employment.
Such changes include reduced work hours, an impending job change, or a new baby.
These checks are mandatory before getting conditionally approved.
It is important to note that financing will only be released once a suitable home is found, and the loan is un conditionally approved.
When To Apply For A Home
Loan Pre Approval
The loan pre approval application should be done before you begin the house search, or at the very least, prior to making a purchase offer.
Preliminary research should be done into the type and cost of the home you are interested in.
This research will help you determine exactly what type of house will suit your needs, and fit comfortably into your budget.
The research will involve:
- Deciding how much you want to spend on a home
- Assessing the property market, including locations and prices
- Determining your borrowing capacity through your mortgage broker
- Working out affordable monthly installments required to repay the loan
- Using a mortgage broker to advise you on all aspects of the home buying process
- Checking different types of mortgages from different financial institutions
Once you have determined your borrowing capacity and payment ability, the loan pre-approval can then be sought.
You may then begin searching for an appropriate home, once pre approval is granted.
Can You Make A Purchase Offer After
Being Conditionally Approved?
home loan pre approval is just a step away from receiving a mortgage contract after full approval.
This allows you to make a purchase offer with confidence, once the right home is found.
This will additionally depend on the conditions of sale set by the home seller.
A private sale, rather than a public auction, allows you to set certain purchase conditions.
Your offer may for example be subject to full loan approval, and building and pest inspection conditions.
A solicitor or conveyancer will be in a better position to offer advice on these matters.
Any conditions set prior to purchase must have an expiry date.
They should take into consideration the duration required for the loan approval.
This can be confirmed beforehand with the mortgage institution.
Auctions on the other hand, require a deposit and ready financing available immediately the offer is accepted.
Offers made before the auction must also meet this condition.
A formal loan approval from the bank must be secured before you can bid at an auction.
Furthermore, you will not be able to set any conditions of purchase at the auction. Independent legal advice should be sought before placing a bid at an auction.
Pre Approval Home Loan Benefits
Getting pre approved before making a purchase offer has several benefits including:
- it gives you confidence to bargain and make offers
- it clarifies exactly how much you can spend on a home
- it is valid for 3 months
- it is free of charge
- it prevents disappointment, in case the lender approves a lower amount than was expected
- it indicates seriousness to a real estate broker, who will then be willing to spend time finding a home for you.
Why A Pre Approval Home Loan
Application May Be Rejected
Lenders can reject a mortgage application for various reasons.
Knowing what these reasons are is very important in avoidingrejections, which negatively impact your credit score and waste valuable time.
These are common reasons why lenders reject loan applications:
- A poor credit rating: This may be caused by previous loan defaults, high debt levels, among other reasons.
- Lack of proper paperwork to accurately document your income. This especially affects self-employed persons or contractors who have no pay slips, or employment contracts that clearly stipulate their income.
- Too many credit enquiries on your credit report. This can be caused by numerous loan applications, which will lower your credit score.
- Recent changes in your life that may affect your financial stability, such as employment changes or a new baby.
- Policy changes by the lender, which alter the lending criteria. However, certain lenders will honour any pre approval lodged before changes in lending policy take effect.
- A recent increase in interest rates. This will decrease the maximum amount that can be borrowed. Higher rates will balloon the total interest paid, as well as monthly installments. This may adversely affect your ability to service the loan.
Securing mortgage pre-approval from a lender is an important step in ensuring a smoother and more efficient home purchasing process.
It separates the financing process from the home purchasing process, allowing you to tackle both much more easily.
Obtaining a home loan pre approval in advance will also speed up your home acquisition, ensuring you do not miss out on a dream home.