Home loan approval comes in three different types, these being pre-approval, which can also be called indicative approval, conditional approval, and final approval also known as approval-in-principle. All of these types of approval are used by lenders to define different assessment types that relate directly to your loan status. In fact, these types of approval can be considered as steps to gaining a home loan. This is why it is important that you check a lender’s approval process and what each step covers, before you make an offer on a home. Otherwise, you may find yourself feeling disappointed or unable to affordable finance.
Let’s look at each of these three types of approval so you understand what you need to do after each stage of approval occurs.
Home loan pre-approval, in most cases, assesses your financial situation and borrowing power. Basically, this means that a lender is verifying that you are eligible for a home loan and can borrow up to a certain amount.
After gaining pre-approval, you’ll then need to complete a full home loan application, select a loan type and submit documentation to support your application. This documentation will include your employment history, monthly income, savings history and recent tax assessment notices.
Conditional approval is the next step after pre-approval, and it typically means that your loan is approved subject to lender conditions. In most instances, these conditions are based on you finding a home within a specified time, and finding a home that is considered as valid security for the amount you are borrowing from the lender.
Once you gain conditional approval, you’ll then need to find a suitable home to purchase. When you find a suitable property under private treaty conditions, make sure you make an offer ‘subject to finance’ as you still need to get formal approval. Allow yourself at least 7 to 14-days to get this formal approval, as this will give you adequate time to find suitable finance should any issues arise.
If you find a suitable property that is to be auctioned, then you need to gain formal approval before you bid at auction. This is important, otherwise you may find that your lender is not willing to finance the deal and you could be possibly forced to find alternative finance elsewhere that is costly.
Once you’ve found the right house let your lender know. You’ll then be asked to give them a copy of the ‘contract of sale’ and they’ll then arrange to value the property. This valuation determines if the property is suitable security for the home loan being offered.
Once approved for formal approval, you’ll then need to finalise your home loan terms and sign a loan contract. At this time, your lender will probably ask you to enter into a direct debit agreement so that home loan repayments can be deducted from your nominated bank account. After your home loan documentation is signed, you’ll then contact the real estate agent who was selling the property and notify them of your home loan approval.
Settlement will then occur on the date specified. Once settlement has occurred the real estate agent selling the property will notify you and you’ll then collect the keys to the property and begin moving into your new home.
Want to know more about home loans? Then contact eChoice and find the right home loan for YOU today.