A good buyer’s agent is the property investor’s secret weapon. We look at a Buyers Advocates secret weapon, finance approval.
Your budget is one of the most important determinants of what property you will be able to purchase. The majority of Australians rely on a mortgage to help them get into the housing market, or increase their real estate portfolio, and the amount they can borrow will impact their budget. What many don’t know however, is the actual process of home loan pre-approval. The following guide will help you better understand pre-approvals, what they offer you and what they do not.
What is Pre-Approval?
Pre-approval is one of the first steps of organising a home loan. When people first meet with their bank or financial institute to discuss a mortgage, they are offered a pre-qualification assessment. A pre-qualification assessment is usually a simple calculator that looks at your income, dependants, expenses and debts. The calculator will generate a likely figure that you may be able to borrow. Pre-qualification amounts are definitely not set in stone, therefore it is important to apply for pre-approval to find out the exact amount you may be able to borrow given your unique circumstances. After your lender receives all of the information they request, the process can take a few weeks before you are granted an official statement of a pre-approved amount they will loan you.
Why get a pre-approval?
A pre-approval is a great indication of how much you may be able to spend on a property. The pre-approval takes into consideration all of the information you have provided in order to generate a likely figure that you will be able to spend. Without a pre-approval you may be limited to the amount of homes you may purchase. Many specialists advise against bidding at auction without a pre-approval as once you submit an offer that is accepted you are not able to retract it. Pre-approval gives you the confidence needed to make sure you look at homes within your budget and feel comfortable making an offer.
What does a pre-approval not offer?
In one word: guarantee. A pre-approval is just that, it is the stage before receiving an official home loan approval. The amount you are pre-approved for is not a definite amount that you will be able to spend however or wherever you may like. The amount does not take into consideration any changes that may have occurred since you were granted the pre-approval, such as change in income or debts, and it does not guarantee that the lender will value an individual property as much as it may sell for. Each banking institution has their own underwriting criteria, and their own property valuations. If you use your pre-approval to purchase a property that they deem to be worth less than what you are willing to pay, they may reject or adjust the loan amount you were pre-approved for.
One of the easiest ways to combat this problem is by speaking to a buyer’s advocate. Buyer advocates, also known as buyer agents, are trained real estate professionals with knowledge of the property industry and housing climate. They provide a range of services to ensure you buy a property for the lowest possible price, but they are also qualified to know when a house may not be worth what the real estate is quoting. Your own personal buyer’s advocate will ensure that they discuss the particular property, suburb, and the climate of surrounding suburbs, to make sure you make an informed choice of how much to pay within your bank’s criteria.
Wise Realestate Advice has a team of professional buyer advocates who can help you find the right property. For an obligation-free conversation, call 1300 009 473.