What is a pre-approval?
In short, it is when a lender gives you an approved amount to borrow after carefully assessing your financial situation. It is the added reassurance of being able to negotiate and put in an offer on a property that is being sold. A pre-approval can also help speed up the documentation process when you have found the home you are looking for. What it can help with is:
1. Know your price range
Having a pre-approved loan can give you an idea of what property is within your price range. Instead of searching for a wider pool of properties all over the show, you can narrow down your search to locations and properties that match your price range.
2. Your offer will be taken seriously
There are more chances that you will be considered a serious buyer when you have a pre-approved loan ready. Keep in mind that once you have found your house you want to place your offer as soon as possible before someone falls in love with it and beats you to it.
3. Quicken the process
A pre-approval is a lender way of showing you that you have been conditionally approved for a home loan and the amount that you are approved for. This makes completing the process of a full approval easier so that you can get financing quicker to help you purchase your home.
4. Have better leverage when negotiating
It gives you a leg over other buyers who do not have their finances in order. You stand a better chance at negotiating and getting your offer through with a pre-approved loan than without one. Although a pre-approved loan can give you leverage it is important to keep in mind that it is only valid for three months.
What do you need for a pre-approval?
You need to be open and honest about the information that you provide for pre-approvals. Fudging the numbers will only delay the process of you getting access to finance. Other things that can help smoothen your application for pre-approvals are:
- Provide financial evidence. Getting documents such as bank statements, payslips, tax returns, and checking your credit report.
- Proof of savings history. Being able to prove that you have a savings history such as the 20% deposit, or other savings accounts that show that you can manage your finances.
- Constantly update your information. A pre-approval is generally valid for three months and it might take some time finding a property before it expires. Having updated information will smoothen the process of re-applying.
- Avoid jumping from one lender to another. Avoid having multiple pre-approvals from different lenders as this will affect your credit report.
After finding the house you would like to turn into a home you can then get a full approval which takes an hour or a few days. It is important that you check to see if you meet the criteria of the loan. If you have been rejected, then it is best to find out the reasons as to why you have been rejected so that you can improve on your next application instead of rushing to the next lender.