Securing a formal home loan pre-approval is the best way to bargain for a good price with the seller. Some real estate agents and vendors won’t actually accept your offer if you don’t have a signed letter, so here are our tips for pre-approval.
Home Loan Pre-approval Process
The following steps are involved in a home loan pre-approval process:
- Sign an application form of a mortgage broker
- Provide proof of loans, credit cards, savings, and income
- When a mortgage broker completes the preliminary assessment, a number of loan products and lenders will be recommended by them.
- Once you select a lender, the loan application is submitted to the broker, along with all the documents
- The lender evaluates your application and provides a home loan pre-approval
What to Do Once Application is Submitted for Home Loan Pre-approval?
Make sure the loan application is in line with the bank policy before you submit it. You can seek the advice of a lender or a mortgage broker to make sure it adheres to the policy and ask the following questions:
- Can you make a bid at the auction?
- Are you required to satisfy conditions before going to the auction or making an offer?
- What are the preapproval conditions?
- Has your application been approved by the lender’s mortgage insurer?
- Has your application been accepted by the credit department?
Important reminder: lending policies and interest rates vary from time to time and are subject to change. So, when you go to an auction, make sure you are aware of the policies and current rates.
What Makes a Reliable Pre-approval?
You are required to submit a formal approval, signed by a lender for it to be reliable. This will make it easier for a lender to assess your application. The more conditions you fulfil, the more your chances are to get a pre-approval.
Make sure the following things are done to be able to secure a home loan preapproval:
- The lender accepts your loan application after evaluating your financial situation
- Banks or lenders don’t have to check-off too many conditions on the application. If there are things on the application that are yet to be confirmed, ask the bank to confirm it first and then submit your application for approval.
- The pre-approval submitted is for more than what you plan to spend on the property. This way you won’t have to apply for another pre-approval if the budget is revised.
Things to Avoid
First of all, avoid non-written applications or a non-formal application; this includes an application that is submitted over the phone or a quick online application. It is likely that these applications have fewer guarantees and you might end up fulfilling different conditions related to your application at a later date, which will only increase your work.
These types of applications are normally collected by banks to generate sales and not provide a reliable pre-approval. Don’t work with a lender who does not assess your application in the pre-approval process. It is important to understand that unless a bank provides you unconditional approval, there is no guarantee that you will get a loan.
Final Approval vs Conditional Approval
Once you fulfil all the conditions, the bank will give you unconditional or final approval. This is the final step in securing a loan. It shows that you are guaranteed to receive a loan and your application has been fully approved. Unconditional approval is only reversed if a lender suspects any fraudulent activity or find any discrepancy that was missed earlier.
If a private vendor accepts your offer or you win in an auction, you’ll get a grace period of 1 to 3 weeks to get your initial deposit and finances in order. During that period, you can check back with your lender to make sure they will honour the contract. Even if you don’t get a grace period, make an inquiry and ask your lender if they will give you approval.