When you have so many factors depending on a timely loan approval, it’s worth taking steps to make sure that approval happens as quickly as possible. A pre-approval can give buyers the confidence to begin looking for a property with some idea of how much they might be able to spend.
There are many benefits to a pre-approval, but there are some downsides as well. Let’s look at whether a pre-approval is worth your time.
What is a pre-approval?
A home loan pre-approval means that a lender has agreed that under the right circumstances they will offer you a loan. However, the loan hasn’t actually been approved – a pre-approval is an agreement in theory, but there are still plenty of reasons why the loan might not go ahead. It means that your application looks good in regards to your basic numbers, but hasn’t actually been reviewed yet.
There are different names for a home loan pre-approval – conditional approval, indicative approval, approval in principle, or Home seeker, for example. Regardless of what it’s called, a pre-approval lets you know that you meet the basic criterial for a loan, and how much you could theoretically borrow.
You don’t have to have a pre-approval to get a loan, but it can give you a head start as you look for a property.
Some advantages to a home loan pre-approval
For most people, getting a pre-approval is a logical and beneficial first step in the process of securing a home loan. Here are some reasons that a pre-approval is worth having before you start to look for properties:
Some disadvantages of a home loan pre-approval
Why your loan might still be declined
If you have submitted your details and been given an estimate, it’s disappointing to think that the loan still might be declined. Here are some reasons your pre-approved loan still might not go through.
Does a home loan pre-approval therefore carry any weight?
Getting a pre-approval is a common first step for people looking to take out a home loan, and for good reason. Not only does it make sense to talk to a lender about your ability to borrow, it’s also important to know how much you might be able to access before you start looking.
That being said, a pre-approval doesn’t actually guarantee that when you do formally apply, you will be approved. There are many different reasons that a pre-approved loan might not be given, so it’s important to consider that possibility.
All pre-approvals are not equal. A quick pre-approval that hasn’t been run by the credit department or the Lender’s Mortgage Insurer means very little. A written pre-approval that has been checked and signed by the lender still isn’t binding, but it does carry a lot more weight.
A solid pre-approval does give you significantly increased confidence that a loan will be approved when you find a suitable property. It can also increase your attractiveness to a seller – if you present a solid, written pre-approval when submitting your offer, your offer is far more likely to be accepted than someone who doesn’t have one, even potentially if you offered a bit less.
If you’re looking for a property, a home loan pre-approval is a great first step to find out whether you are likely to be accepted for a loan, and how much you might be able to access. Remember to ensure your pre-approval has gone through as many checks as possible, so when it comes time to make an offer on a property you have the confidence that everything will go smoothly.
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