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Pre-Approval of Finance

Posted by Tamara McDowell on February 16, 2010

Competition for property can be fierce. Get ahead of the pack with a pre-approved loan.

What is a Pre-Approval?

Sometimes referred to as an  approval in principle, pre-approval is a general indication of how much you’re able to borrow based on the information you provide to your lender.

Although subject to terms and conditions, a pre-approval basically gives you the green light on your home loan even if you’ve not yet decided on a property.

The amount of the pre-approval is usually determined by your ability to meet the loan repayments.

Most pre-approvals are valid for up to three months.

A pre-approval will place you in a stronger negotiating position with most sellers in the market.

The pre-approval will usually be subject to certain conditions. Some examples are:

  • Satisfactory valuation of proposed purchase
  • Security is acceptable at the LVR chosen as per Bank policy
  • Your ability to provide  further information, if necessary.
  • Notification from the State Revenue Office that your application for the First Home Owners Grant has been successful (if applicable)
  • There is no change in your financial position from the date of the pre-approval letter until the time you receive your loan contract.

Be careful with the term unconditional as it means that all of the lender’s requirements to assess the application have been satisfied(including valuations, if applicable). However, there still may be some other lender conditions that apply.

How do you get Pre-Approval?

To kick start the pre-approval process you’ll need to give your mortgage broker some key documents.

These should include proof of your income– such as a letter from your employer or copies of your pay slips – proof of identity, and
details of any assets you own.

Other paperwork might include details of any existing loan commitments and limits on credit cards.

Once your financial status has been given the tick of approval by the lender, you’ll receive a pre-approval notification that will see you on your way to home ownership in little or no time at all.

Why Obtain Pre-Approval?

• Peace of Mind – a pre-approval gives you the confidence of knowing how much you can borrow when buying a property.

• Jump the queue – having your home loan pre-approved enables you to seize the opportunity and act quickly when you find the property you want.

 • Stronger Bargaining Power – a pre-approval can sometimes help you negotiate a better price with the seller, especially if there are fewer stringent conditions upon the sale.

 • Ability to Bid At Auctions – under the conditions of a cash contract, a pre-approval allows you to bid at auction for the property of your choice.

Remember even though you have a pre-approval of finance, when signing an offer and acceptance to purchase, you will need to ensure it is “subject to finance” ….or “subject to ABC finance” (ABC being the Bank/Lender that you have obtained pre-approval from.

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