In this article:
In addition to providing a clear idea of your borrowing capacity, a mortgage pre-approval can also expedite property purchase. Here a few things you need to consider before applying for one.
With the current property market being a buyer’s one, any step to quicken a home loan can contribute significantly to not missing out on a good property deal. Securing a pre-approval is an excellent way to expedite your mortgage approval process. Here’s a quick understanding of what it is, why it is beneficial and the things you need to keep in mind while applying for it.
What is a mortgage pre-approval?
Also known as conditional approval and in-principal approval, a pre-approval is nothing but an indication by a lender that it is likely to approve your home loan application subject to fulfilment of certain conditions. Though the pre-approval process varies from lender to lender, it is usually granted after evaluation of a borrower’s financial position, job security, saving and spending habits.
Why should you get a pre-approval in the first place?
A pre-approval makes it easier to get final approval and can be crucial in acting fast and securing a not to be missed property deal. It also gives newbie borrowers an idea of their borrowing capacity. In case of a rejection, once again, you get a good idea of areas that need your attention.
Things to keep in mind with a pre-approval
While it’s worth your time to go in for a pre-approval, it is not a mandatory step for securing a home loan. Additionally, there are few things you need to keep in mind about a pre-approval
- No guarantee of final approval of your mortgage: The lender is not obliged to approve your home loan. A pre-approval is subject to conditions like
- Accuracy of applicant personal and financial details
- Property evaluation
- Submission of property documents like security deposit, asset and liability detail
- Different types of pre-approvals: As mentioned earlier, lenders follow different processes. Some lender pre-approvals involve a thorough assessment by a professional credit team, while others use a system-generated ‘on-spot’ pre-approval as a sales tactic. This kind of pre-approval is usually not of much use. On the other hand, final approval after a pre-approval granted by the lender’s credit team will be a lot faster.
- Pre-approval shelf-life: A pre-approval is usually valid for 90 days. So, apply for a pre-approval when you are pretty close making a property a property purchase.
- Too many pre-approvals: A lender issued pre-approval gets recorded in your credit file. Applying for a pre-approval with too many lenders in a short period may be perceived as financial distress and may therefore negatively impact your final mortgage approval chances.
Seek Professional Advice
For a better understanding of the value of your pre-approval and steering clear of ‘on-spot’ pre-approvals engage a mortgage broker. Not only will a broker help with all the paper but will also guide you on lenders that issue valid and reliable pre-approvals granted after a proper assessment by their credit teams. This should prevent you from applying for pre-approval with multiple lenders.
Reach out to us for the best way forward as per your circumstances.
The information is a compilation from various sources for your benefit and should not be relied upon in lieu of appropriate professional advice.