While many property investors and most homebuyers don’t bother getting one, I believe a loan pre-approval provides you with a clear advantage when shopping for your investment property.
It enables you to buy with confidence knowing your finance has been pre-approved and it puts you in the position to buy properties unconditionally such as at auction.
And currently with the banks changing their lending criteria and how they view loan serviceability, it’s more important than ever
In fact at Metropole well before we commence searching for a property for our clients, we have an initial strategy meeting and ensure that we understand our clients long-term needs, the calls and the risk profile; and then we always get the finance pre-approved and their ownership structures in place.
However it’s important you understand the conditions that come with finance pre-approvals.
Firstly it’s important to understand that when a bank says you can get a loan you may not actually be pre-approved – you may just be pre-qualified.
In my mind this is not good enough to allow you to start your property search.
Let me explain…
Getting pre-qualified for a loan gives you an idea of how much you might qualify to borrow.
It’s the sort of information you can get online, or when you speak to your bank or broker and give them the verbal information in relation to your income, your assets, and your liabilities.
As none of your information has been verified you have not really been approved for a loan, just been given an indication of what you may be able to borrow and there are no guarantees.
On the other hand, getting a written pre-approval means the bank has verified your income, assets, and liabilities, as well as check your credit rating.
Your pre-approval will tell you the maximum purchase price you can buy up to as well as a number of conditions that will apply for the bank to lend you your funds.
This will usually protect the bank by saying the property you purchase will be subject to a valuation.
You will also be told your maximum loan to value ratio, whether you will require lenders mortgage insurance and if you are buying an investment property they may be a required rental return to help pay for the mortgage.
So while pre-approval is still subject to various conditions, it carries more weight than a pre-qualification and should give you the confidence to take advantage of property market opportunities that arise.
Of course if your personal circumstances change, such as losing a job, between the time of obtaining the pre-approval and when you purchase your property, the bank will have a right to reassess your position based on your new circumstances.
Advantages of home loan pre-approval:
- You’ll know exactly how much you can spend
- You know what your repayments will be
- Your final loan will be organised faster
- There’s usually no cost to you
If you’re looking to get into the property market, or grow your property portfolio further, why not have a chat with the team at Metropole.
We will help formulate a proven property strategy for you, or review your current property portfolio, and we’re more than happy to refer you to an independent finance strategist who can help you obtain a pre-approval before we go into the market for you.
Just click here to organise an obligation free strategy session.