9 January 2019
Everything first home buyers need to know about pre-approval
Pre-approval, conditions, LIM and builders’ reports, life insurance... there are lots of new terms that crop up as you begin the journey to first home ownership. Our eBooks and resources can help demystify these for you, and in this blog we share useful information about pre-approval. It’s a vital step towards being prepared to make an offer on your first home and it pays to understand the ins and outs.
Pre-approved finance means you’ve been approved by a bank or mortgage broker as a borrower. The pre-approval is conditional on two key things:
- Your income and credit positions don’t change between getting the pre-approval and buying.
- The home you choose meets the loan provider’s lending conditions.
Also known as conditional approval, it lets sellers and real estate agents know you’re serious about buying a house. You must have pre-approval to be able to bid at auctions.
To apply for pre-approval, you’ll need to provide information and records such as proof of income, bank statements (i.e. to show your income in your account/s), proof of your saved house deposit, and proof of identity.
When you meet with a bank or mortgage broker about pre-approval, it’s also a good time to get answers to some burning questions, such as “What level of deposit do I need?”, “How much can I borrow?” and “What are the repayment terms?” – and of course any other questions you have.
Without being dramatic, we’d like to warn you that sometimes people experience the plug being pulled on a pre-approval. You can reduce the risk of this happening by being clear on the terms and conditions of the pre-approval and keeping the bank or mortgage broker up-to-date while you are house hunting.
There are several common reasons why pre-approvals can be withdrawn:
- The lender finds a problem, such as a bad credit record. This often happens when the pre-approval is granted too quickly (e.g. online rather than in person) so it’s a good idea to speak with someone in person and share as much information as you can, so nothing crops up later to cause trouble.
- The property you’d like to buy turns out to be a leaky building. The property becomes the security on your loan and there are some properties lenders don’t want to touch with a 10- foot pole. A pre-approval may not turn into a loan if the property isn’t deemed adequate.
- A credit crunch strikes or the Reserve Bank makes changes. It’s completely out of your control but if the flow of money into a bank slows, or interest rates or regulations change, banks can cancel pre-approvals. Things like this will be noted in their terms and conditions.
- You change your mind. If you gain a pre-approval based on becoming a home owner-occupier but then decide you’ll buy it as an investment property to let out, the pre-approval may be cancelled.
- The 90-day time limit lapses. Most pre-approvals are valid for a certain period based on how much you’re borrowing so ensure the time limit is still valid when you make an offer.
To demystify more about buying your first home and learn helpful tips, download our guide to Financing your first home.