Pre-approval simply means that the lender has evaluated your property purchase, your basic details, and has obtained other early details, in order for you to start looking for property. It provides you with an informed and reliable estimate of your true borrowing capacity, but it doesn’t necessarily fully consider your serviceability or credit history (the latter two stages are very much dependent upon the bank). So, the pre-approval is conditional upon the property you wish to purchase being acceptable security, and your lender confirming your income and other information provided in your application.
Keep in mind that no pre-approval can be relied upon until papers are signed. Conditional or Pre-Approval means a lender has assessed your financial situation and the estimated loan amount they propose for you might be formally approved once you find a property.
It is highly recommended you consider pre-approval before house-hunting so you’re fully appraised of how the bank wills assess your financial position – you need to know exactly how much you can borrow. Certainly, if you’re going to an auction or putting a deposit down on a property you’re leaving yourself open to potentially losing those funds if your finance is not successful.
Pre Approval Summary & Considerations
Peace of Mind When Searching For a Home
Knowing your borrowing capacity provides a borrowing budget, and arms you with the necessary confidence to search for a property that you can afford, and one that a bank is more likely to finance.
You’re a Serious Buyer
Real-estate agents will treat you more seriously, and will be far more likely to negotiate, if you have pre-approval. Often, if you are negotiating a price down a real-estate agent will convey that to the vendor and possibly make a slightly higher-priced property more accessible.
A Pre-Approval Will Expire
A pre-approval will expire after (usually) 90 days. It may be extended but fresh information will be required by the banks before an application can be processed. It’s best to get the pre-approval when you need it and after you have ‘researched’ the property market, and you know what you’re looking to purchase.
A Pre-Approvals Change When Your Financial Position Changes
If your financial position changes your pre-approval will become invalid. To name just a few conditions, this may include a change in job or salary, new credit cards or other financial obligations, reduction in savings or lifestyle, or a pregnancy. Any change in your financial position will also impact upon your borrowing position.
Some Property Types or Locations May Not Meet Pre-Approval Criteria
Some property types, postcodes, or the livability of the property, may impact on the bank’s willingness to provide pre-approval. Talk to us first and we’ll advise if a pre-approval application is likely to be accepted – we don’t submit loans that we know will be rejected.
A Record is Made on Your Credit File
Each pre-approval application will be added to your credit history, regardless of whether you are approved or rejected. A large number of credit enquiries on your file over a short period may impact negatively on your credit score.
The Value of a Pre-Approval Differs Between Banks
First, a pre-approval is normally a partial application in that your application hasn’t been fully assessed. In some cases your file doesn’t even go before a credit assessor, so you should ensure that your pre-approval application is made with an understanding of possible defaults you may have had, and is made without excluding any information. The pre-approval is called a ‘Conditional Approval’ because it’s conditional upon all the appropriate due-diligence and checks made by processing teams.
Some pre-approval applications are made online in a few minutes, while others will be similar to a standard application, with a requirement for a suite of signed and notarised documentation; the latter process tends to be a more reliable indicator of your borrowing power. In fact, we recommend avoiding online or short-form applications since they’re not nearly as accurate as a more comprehensive assessment.
If you require LMI, it’s possible that the LMI provider will decline your application based on their own criteria even though your information is suitable for the banks. If you’re serious about your efforts you’ll work with us to check with the LMI provider to determine if there’s any reason why the application might be rejected.
What Does the Pre-Approval Process Involve?
We submit the pre-approval on your behalf. The following is a very basic timeline for the conditional application:
- Complete an application form.
- Provide evidence of your income, savings, and debts such as credit cards and other loans. We’ll need to know if you have any known defaults.
- We complete an assessment and provide you with a list of suitable lenders and products. We’ll discuss each product and the associated features with you.
- Under instruction from you we’ll submit the pre-approval application. We have an extensive knowledge of bank policies so we generally submit to a lender that we’re comfortable is suitable for your circumstances.
- The lender will process the application. The time taken to process can be anywhere from a few hours to a few days – it depends upon the lender.
Once the application is processed we’ll discuss the outcome with you. Even if approved it’s important that you’re aware of any issues the bank may have identified.
Using a Pre-Approval at Auction
Conditional approvals provided by a large number of lenders simply cannot be relied upon. For example, St. George, Westpac, Suncorp Metway, NAB, ANZ, and Rams – just to name a few – should be considered unreliable.
If you intend to bid at auction you’re normally doing so with some measure of value assigned to the conditional approval, so it’s important to apply for a pre-approval that is more likely to be honoured, so you should generally apply for the conditional approval with a lender that applies the appropriate employment, credit, LMI and other checks.
If your conditional approval isn’t reliable you should request a cooling-off period or finance-approved clause in the early contract. For this reason it makes sense to employ the services of a solicitor or conveyancer before you go to auction so you have additional professional resources to draw upon.
What is a Full Approval?
A full approval is given once your application is fully assessed and all the bank’s conditions are met. This full approval is the guarantee that you will receive finance for a property.
A bank will only decline a full approval if they miss vital steps in the application process, the discover undisclosed information, or they suspect fraud.
How Do I Apply for Conditional Pre-Approval?
You should call us on 02 6188 4555 and we can make immediate arrangements for the application to be made. We’ll also provide other advice necessary for your purchase.