Many of the younger generation when going through the initial stages of considering a home purchase whether it be their first, second or even investment seem to have the perception they need to get a pre-approval in place to be in a position to make an offer on a property or even make an appearance for bidding at auction.
This perception could be due to the fact that to a client has walked into their local bank to set up a high interest savings account and the teller behind the counter serving asks what the plans for the funds. The client may proceed to say they plan to purchase a house in the near future once they have a desired amount in the account. With this being said the teller might proceed to tell the client they have the ability to obtain a pre-approval on the spot without going through an in depth assessment.
The teller may even set up a meeting right then and there with the resident home loan expert who will proceed to tell the client their best option right now will be to obtain a pre-approval so they know how much they will be able to spend on purchase. This may lead to the client not knowing in depth the terms and conditions of the pre-approval and think that the pre-approval is valid indefinitely so they have all the time in the world to search for a house, but in the meantime between obtaining the pre-approval and actually placing an offer on a property a number of factors could take place that make the pre-approval useless.
In some instances with pre-approvals that have been issued, the client has placed an offer on a desired property which they had accepted only to find out later in the purchase process that the pre-approval is not valid for the current purchase in place and in some cases not knowing to talk with a broker about alternate options with another lender therefore losing their deposit and their chance of owning the desired home.
Some key points about pre-approvals:
- Each application for a pre-approval takes the same toll on your credit file as any full home loan application.
- Pre-approvals are only valid for 90 days max, once this time has lapsed you would then need to apply for another pre-approval if you are wanting to go down this path.
- If the lender and the lender’s policy is no longer the most suitable option and you wish to change lender your pre-approval is useless.
- If your circumstances change for the worse, your pre approval will become useless.
- The pre-approval process take longer than 60 seconds as some banks like to offer quick over the counter approvals
- A lender can and in many cases will review your situation within 90 days when you decide to make a purchase.
When a potential client decides to talk to a broker they are in great hands, a highly experienced broker will carry out an in depth review of a client’s situation free of charge and once completed the research will advise the client of their financial position and whether a pre-approval is actually needed or not. If this option does need to be utilised your broker will be able to run through all the necessary information explaining what will happen along with the terms and conditions. A broker’s decision to recommend a pre-approval will be dependent on how the client’s situation stacks up with the lenders and their serviceability also to ensure finance is able to be obtained for a purchase.
If there is no issues with a client’s situation then there is definitely no need for a pre-approval, but once again your broker will advise if one is needed.
If you would like a free review of your situation and would like to know information regarding pre-approvals, please don’t hesitate to get in touch with your mortgage broker Gerry today and we can talk further about should there be any questions/queries you may have.