Yellow Brick Road: Home

A Guide to Mortgage Pre-approval

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.

Take the first step

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.  

Feature Articles

JobKeeper's Discontinuation Impact on Property Prices The discontinuation of JobKeeper subsidy is unlikely to affect property prices. Here's why along what you need to be mindful of if you are looking to buy property.

The impact of Best Interest Duty on borrowers BID (Best Interest Duty) obligations are applicable only to mortgage brokers and not lenders or banks. Understand what this means for you as a borrower.

4 Ways to get onto the Property Ladder Faster If you feel that you're getting priced out of the booming property market, here are a few tried and tested approaches to get on track.

A Guide to Construction Loans Understand how construction loans differ from regular loans, the various stages involved and things to be mindful of while looking for one.

How to make the most of your offset account Easy steps anyone can follow for effective use of an offset account to reduce mortgage repayments.

Seven Must-Know Home Loan Features A quick guide on important features that are worth considering while deciding on a home loan product.

View all articles

Enquire now