Is a home loan pre-approval a waste of time?

An experienced mortgage broker should be able to provide to you, with some level of certainty, whether you will be approved or not.

Too often clients will panic because they need to organise their “pre-approval” to understand just how much they can shop with. For them, this involves 60-70% of the lending process before the fun has even begun.

You can get the same information from an experienced mortgage broker, which is the confirmation that you can borrow money and how much you can spend on a property.

How to apply for a pre-approval

There are two ways to complete a pre-approval, one being more favourable.

Whilst you can easily do a pre-approval through the bank’s online portal, it may not always provide an accurate result of how much the bank would be willing to give you once you apply for formal approval. The reason for this discrepancy is because system-generated assessments usually don't take into account your full financial situation. Furthermore, each lender has a different HEM (household expenditure measure) which is used to assess a 'basic living expense minimum'.

Your pre-approval will dictate your budget so it is important to have a good understanding of what this is however not always relevant. Applying for a home loan pre-approval is certainly not compulsory if you want to get a home loan. I only recommend pre-approvals in certain situations because it is just not necessary anymore – often it does not even provide the certainty you want (which is knowledge of how much you can borrow).

You should consider applying for home loan pre-approval if:

• You are buying a home for auction.
• After discussing your financial situation, we decided it would be safer to do so.

You probably won’t need a home loan pre-approval if:

• You're buying a home with a fixed price and we decide you don't require a pre-approval.
• You're buying conservatively; well within your borrowing capacity.
• You are building a home.

Most people do not need a home loan pre-approval before making an offer on a property.

Get in contact with us now and we will find you the Topbroker in your area. Alternatively, run a postcode or suburb search and read up on our Topbrokers!

What are the issues with loan pre-approvals to be aware of?

Here are some common misconceptions about a pre-approval:

• "I've been pre-approved so the bank will lend to me; guaranteed."– A pre-approval is based on the exact figures you have supplied to your broker. If your circumstances have changed detrimentally, you may not be approved when it comes to formal approval. For instances, if you have over-stated your savings to be $45,000 and it is $41,237 then you may not meet the criteria for approval.
• Pre-approvals are not 100% accurate – Pre-approvals are computer-generated assessments and most don't assess your actual situation and therefore mistakes and discrepancies are made.
• Your bank valuation might be unfair and require us to change your lender. - This is something we see time and time again. There are four ways valuations are conducted on residential properties and often, very often, banks valuations will differ. Getting a fair and correct valuation could mean the difference of paying lender's mortgage insurance (LMI), rate differences and/or how much equity you can unlock for future purchases.
• Pre-approvals create an enquiry on your credit file.– Avoid When applying for credit, you will get an enquiry on your credit file. With the introduction of comprehensive credit reporting, this has lessened the stress of shopping around however, you still don't want unnecessary and an abundant amount of enquiries on your file. This can lead to further questions from the lender, a possible decline and/or a higher interest rate if you are seen as more 'risky'.
• The right bank might change depending on the property type and location you end up buying.– Often you go shopping for a pair of pants and come home with a new outfit. So many times we see clients completely change what they are intending to buy. They start with a unit in the city and end up with a renovator in the suburbs. The type and location of the property will heavily influence the lender we end up recommending.

Other things that could impact the validity of your pre-approval;

• You lose your job or reduce your income in some way;
• You take on new debts;
• The property that you’re building is valued at a significantly lower amount to what you’re paying for it;
• You have overdrawn your account;
• You negate to pay your existing debts on time;

What we recommend instead of applying for a home loan pre-approval is working with one of our experienced Top brokers.

They can provide you with all the same information as a pre-approval (with the same reliability as a pre-approval) but without the headaches of a pre-approval;

• Which lenders would look at you as a client;
• The amount of deposit required;
• Your borrowing capacity;

You’ll still get all the benefits of a pre-approval without the downsides, especially the hassle of applying.

The more information you provide in a pre-approval, the more accurate it will be. We recommend avoiding 'free online approvals'. This is too often a marketing ploy to gather your details and essentially lock you down as a client. Several conditions (often additional conditions) are attached to the pre-approval and often isn't paid anyway, thus deeming it nearly useless.

Get in contact with us now and we will find you the Topbroker in your area. Alternatively, run a postcode or suburb search and read up on our Topbrokers! An experienced mortgage broker should be able to provide to you, with some level of certainty, whether you will be approved or not.

Too often clients will panic because they need to organise their “pre-approval” to understand just how much they can shop with. For them, this involves 60-70% of the lending process before the fun has even begun.

You can get the same information from an experienced mortgage broker, which is the confirmation that you can borrow money and how much you can spend on a property.

How to apply for a pre-approval

There are two ways to complete a pre-approval, one being more favourable.

Whilst you can easily do a pre-approval through the bank’s online portal, it may not always provide an accurate result of how much the bank would be willing to give you once you apply for formal approval. The reason for this discrepancy is because system-generated assessments usually don't take into account your full financial situation. Furthermore, each lender has a different HEM (household expenditure measure) which is used to assess a 'basic living expense minimum'.

Your pre-approval will dictate your budget so it is important to have a good understanding of what this is however not always relevant. Applying for a home loan pre-approval is certainly not compulsory if you want to get a home loan. I only recommend pre-approvals in certain situations because it is just not necessary anymore – often it does not even provide the certainty you want (which is knowledge of how much you can borrow).

You should consider applying for home loan pre-approval if:

• You are buying a home for auction.
• After discussing your financial situation, we decided it would be safer to do so.

You probably won’t need a home loan pre-approval if:

• You're buying a home with a fixed price and we decide you don't require a pre-approval.
• You're buying conservatively; well within your borrowing capacity.
• You are building a home.

Most people do not need a home loan pre-approval before making an offer on a property.

Get in contact with us now and we will find you the Topbroker in your area. Alternatively, run a postcode or suburb search and read up on our Topbrokers!