So you’re looking for a home, how do you go about getting loan pre-approval?
Firstly what is pre-approval?
When someone gets pre-approval for a loan, it means a lender has agreed to lend a certain amount of money towards the purchase of a property but hasn’t proceeded to full or final approval.
This allows buyers to have a realistic price range when searching for a property and bid with confidence at an auction. Another benefit is that vendors often want to sell their property quickly, so having pre-approval may give you the upper hand over other buyers.
Here are a few tips to help you get pre-approval:
Reduce your debt and credit limit.
Any outstanding debts will directly affect your maximum lending amount. Take note that lenders will factor in the full amount of any credit cards despite your current balance.
Ensure you have savings.
Not only is it essential to have savings to cover your deposit. It’s also fundamental that you have proof of regular savings over a period of time, to prove to your lender that you’re able to keep up with payments long term.
A common mistake many people make is simply getting a loan through their current bank. It is vital to shop around before you get pre-approval to find the lender who will give you the most bang for your buck and suits your needs, it could end up saving you thousands. A mortgage broker is a great tool to help you do this, as they will understand what you require in a loan and find you the best options. What’s even better is it’s free as lenders will pay the broker a commission fee for referring you.
Although pre-approval is not a requirement when buying a home, it has many benefits and can make life much easier if you have to borrow.