Getting conditional approval on a home loan before starting your search for a home is an important step to help kick-start the borrowing process. Firstly, this approval allows you to look at homes, and enquire with self-assurance. Also, it lets you consider options, and to create a short-list. So, how can you use home loan conditional approval to your advantage?
Many people who attend home inspections aren’t always there to buy that house. On most occasions, open home visitors are getting a feel for the market and doing their research. Some, are also just seeing how the other half live.
However, when you arrive at an open inspection with conditional approval for your home loan, you place yourself in a different league to these other people. Agents and vendors view you as a serious buyer. So, don’t be afraid to discuss your situation with the agent. Let them know that you’re looking to buy and what you’re interested in purchasing. While the house you’re viewing may not be the right one for you, the agent may have others listed that are. Therefore, by letting the agent know you’re seriously looking to buy they’ll help refine your search by keeping an eye out for property that may interest you.
Home loan conditional approval keeps you financially grounded. Therefore, rather than looking at property beyond your means, you focus on homes within your budget. Knowing what you can afford before you start looking for a property stops you wasting time and drooling over unaffordable homes. As a result, you have realistic expectations.
If you’re looking to buy a home privately, known as a ‘private treaty’, then you can put in an offer ‘subject to finance approval’. By putting this clause in the contract of sale you’re saying that conditions apply and once met then you’re interested in buying the property.
Of course, when making an offer, just make sure that the price is within your budget and the offer within a reasonable approval timeframe. For instance, most lenders will take up to three to four weeks before they’ll give you full approval. This timeframe gives them time to carry out property valuations and to check your financial background and history, as well as other facts.
If you’re keen to buy a property that is going to auction, then getting conditional approval is vital. Arranging your finance before auction enables you to bid confidentially. Although, you need to be aware of market values and stay within these. Otherwise, you may find your lender values the property you’re looking to buy at less than you’ve agreed to pay. Consequently, you’ll then need to find funds from elsewhere to make up the shortfall.
Plus, if you place the winning bid, then you’ll also need to have the required 10% deposit, which the agent will ask for after the hammer fall. For instance, if you’re buying a home for $520,000, then you’ll need to have a deposit of $52,000 available.
Lenders use different terms and guidelines for conditional approval. Terms that you may encounter include pre-approval or approval-in-principle. All these names describe the same concept. While it is confusing, you can think of these terms as:
- An enquiry that proves your financial position.
- A guide, not a guarantee, from a lender as to how much you can afford to borrow.
- 90-days to get your full home loan application in for assessment.
It’s best to apply for home loan conditional approval when you’re seriously looking to buy a home. Why? Well, conditional approval is valid for a specified period – usually 90-days from the date of application. So, it’s important that you don’t apply too soon. Otherwise, you may have to go through the process again.
Why do lenders only give you 90-days?
Financial circumstances are continually changing. You can lose your job, get a promotion, or may even change employment. All these factors, and more, dictate to your ability to secure conditional approval for your home loan.
Additionally, before applying for home loan conditional approval, it’s vital that you:
- Calculate your borrowing capacity using an online calculator.
- Determine home loan repayments based on your borrowing ability.
- Work out how much you can afford to repay each week.
- Study the various home loan types.
- Review the market and narrow down property types and locations.
- Save the required deposit.
Once you’ve established these factors, then it’s time to apply for conditional approval. At this time, you’ll need to supply your lender or broker with proof of your income, assets, and debts.
Your lender will then do a background check and investigate your credit history. If the data adds-up and everything looks favourable, then you’ll gain conditional approval – subject to meeting conditions.
Next, review lending packages. You can do this by contacting lenders directly, which can be time-consuming. Alternatively, you can contact a mortgage broker, who does all the challenging work for you.
After you’ve found the right lending package, then it’s time to find the right property. Visit open inspections and auctions frequently and establish what you do and don’t like in a home.
When you find the right home, then you need to apply for full approval. At this time, your lender will want information on the property – dwelling type, postcode, and purchase price.
Your lender will then crunch the numbers and consider the property. They may request a property valuation to ensure the asset is in good condition and meets their standards.
If everything stacks up, you’ll then get full approval. When this occurs, it’s just a matter of waiting for the settlement date to come around.
Are you seeking home loan conditional approval? Then contact eChoice, our brokers have access to 100’s of products and will support you throughout the home loan process. We can help you get pre-approved, calculate your estimated borrowing power and find you a competitive home loan to suit your needs.