Be aware of pre-approval pitfalls
The growing popularity of home loan pre-approvals has helped many prospective home buyers shop with added confidence, but not all pre-approvals are the same. Understanding the different types and following the below tips can help you avoid the pitfalls of certain types of pre-approvals.
Loan Market has seen the uptake in home buyers shopping around with pre-approvals doubling in the past two years. Pre-approval is an important advantage for buyers who can use it to negotiate buying a property of interest. Pre-approval helps by giving an exact amount you can afford and can also to give you an advantage when bidding on a property you have interest in.
Online pre-approvals which do not fully asses your credit situation however can give a false sense of confidence that you can afford much more than you could actually borrow once all of the necessary documentation is thoroughly reviewed by a lender. You should make sure your pre-approval is a full assessment of your situation, rather than an automated answer from a system online. Any time you receive an approval to borrow a significant amount of money, without having to give any in-depth financial information, it’s not going to be an accurate or meaningful approval. The danger with these types of quick pre-approvals is that you may use those amounts to bid at auctions or make offers on properties thinking that your property finances are ready-to-go.
If you are looking at getting pre-approval for a potential home purchase follow these tips:
- Make sure the approval is a full assessment
- Disclose any previous noteworthy credit or finance blemishes that may be uncovered at a later date
- Be wary of a pre-approval that did not require an in-depth review of your historical and current financial situation
- Avoid multiple pre-approvals as it could affect your credit rating
- Check the period the pre-approval is valid for: pre-approvals normally last between 3-6 months and extensions are generally easily done