Going in with your finances at the ready can prove to be a crucial element in securing that perfect investment at auction, or to give yourself some extra peace of mind in standard transactions.
Essentially, pre-approval is an agreement that a specific lender will provide a set loan amount for your property (subject to conditions including valuation and building/pest inspections). You may have also heard it being called 'indicative approval' or 'conditional approval'.
“A pre-approval takes the tension out of whether you can or can’t negotiate on price,” says Andrew Mirams, managing director of Intuitive Finance in Victoria. “It means it’s one less thing you need to worry about when you’re out there looking for property.”
Pre-approval will allow you to move fast when the deal does come up and will help you remember your budget.
How to get pre-approval
A quick trip down to your broker, or lender, should be able to help secure you pre-approval. It may, however, be possible to sort this out through the internet as well. For a casual 'idea' of pre-approval, there are even smartphone applications available.
“It’s pretty easy to organise a pre-approval and not too dissimilar to other loan applications,” says Mr Mirams.
Generally you’ll need to provide details such as your employment, income, assets and liabilities, as well as some personal information.
There is also a growing requirement for applicants to demonstrate evidence of a savings pattern. Remember, the more detailed your application (it's worth treating it like "the real thing") the more accurate it is likely to be.
- Pre-approval is usually valid for up to 90 days.
- It should be used as a guide only. If, in the meantime, your circumstances, the property market or the bank’s lending criteria change then you could find this figure changes.
- Pre-approval from one lender may differ from another
- Ask your broker whether you can bid at auction with the pre-approval. Usually, internet-generated pre-approvals are not reliable for this purpose.