Brilliant news, your loan has been pre-approved but what does this mean exactly? More than often first home buyers don’t realise that this approval is only indicative, which means it is not a final approval and get into a situation when they buy a property at auction only to find their loan approval is declined or withdrawn by the bank!
So how do you know if you can rely on your banks pre-approval?
Not all banks are the same when it comes to assessing a pre-approval home loan, also known as a conditional approval, indicative approval, approval in principle or home seeker depending on the bank you use.
In most cases a pre-approval is just an indication that the bank is ok to consider approving your loan, they may just complete a credit check and not check any of or your documents and wait until you lodge a full mortgage application to do this.
A full mortgage application is done when you find a property and means the lenders will complete the entire assessment of your loan, they will verify your payslips, bank statements, your income information, savings information and any liabilities you have to be 100% sure they can lend you the money.
Unfortunately, if you have gone out and got a pre-approval from a bank the lender is under no obligation to then fully approve your loan once you have found a property. They can say your situation has changed and knock you back.
Why bother getting a pre-approval then, are there any benefits?
Even though your pre-approval might not be a formal, or unconditional approval it gives you a fairly accurate idea of your borrowing capacity – i.e. the total amount the bank will be able to lend you.
Knowing this figure can help determine your purchase price range, and what you can afford so you can spend time looking into properties you can accurately afford. It also gives you the confidence to make an offer on a property, and ultimately give you the best chance in a really competitive property market.
If you are in the market to buy a property you can call us on 1300 088 065, or complete our free assessment to get pre-approved today.
What are some of the common conditions of an approval?
In most cases, a pre-approval has conditions that need to be fulfilled before the loan can be unconditionally approved. These can range from generic conditions, like subject to valuation or specific ones like obtaining a letter from your employer.
A few bank terms & common conditions include:
- Our validation of all details provided to ensure they are true and correct.
- Our receipt of all necessary supporting documentation (Please print the Application Checklist from the Forms section of the broker website for the information we require now).
- Satisfactory valuation for the proposed security property(s). We will arrange for this to be undertaken where the Bank requires a valuation be completed.
- Lender’s Mortgage Insurance approval, if required.
- No significant change in the customer’s financial position.
Once all of the conditions are satisfied we can issue loan agreements(s). The loan agreements(s) and other documentation will set out requirements which have to be met before loan funds will be made available. Customers must sign and return the loan agreements(s) within the first 90 days from the date of this letter or we may require you or your customer to revalidate their financial position
As you can see from the example above, the bank hasn’t actually assessed the home loan application and while the details entered into their lending system are acceptable an actual credit assessor hasn’t reviewed the application to double check the numbers match – for example, that the income details that have been entered match the payslips provided.
What are some questions I can ask to make sure I have a real pre-approval?
Our team at Hunter Galloway always request that our clients pre-approvals are fully assessed by the lender or the bank if for some reason this is not possible they will let you know.
To make sure you are protected a few questions you should ask your banker or broker to make sure your loan application has been assessed and you have a real pre-approval include:
- Has my application gone to the credit department
- Have LMI approved my application
- What are the conditions of my approval
- Can I bid at an auction based on this approval?
If you are given an on the spot approval or system generated approval your home loan was never really approved toeing with. In this case, your loan could be declined in the future.
Are there any specific lenders that tend to provide unreliable pre-approvals?
Again you should ask your banker or broker the above questions, but you can be cautious of any system generated approvals from St George Bank, Westpac Bank, Suncorp, ANZ, NAB or any other bank that gives an on the spot pre-approvals. In the case of these banks while they may complete a credit check, and provide an approval in principle your application hasn’t been assessed from the credit department and therefore the bank could change their decision to lend you the money at a later date.
Help this is all confusing
If you are a wanting to get a pre-approval or buy a home speak with one of our experienced mortgage brokers to walk through the next steps with you.