Pre-Approval vs Pre-Qualified – let’s define, then assess the merits of each.
A formal pre-approval is the bank conditionally approving your borrowing power given specific circumstances and conditions. The bank has assessed your situation as it stands now and indicated they will lend to you, for a property they approve, a certain amount if your situation is the same (or better) when you buy.
If you get preapproved to buy in the $800k range because you have $160k (20%) deposit but one of you loses your job before you buy a property (or you buy a car, have a kid, have a change in income, etc) the bank reserves the right to re-assess and either re-approve or withdraw your pre-approval.
A pre-approval is not a guarantee of anything.
A home loan pre-approval is provided by a lender in writing, confirming that subject to certain specified conditions being met, that you may be able to borrow up to a specified sum. This is also known as a ‘conditional offer’ of finance.
When you receive your pre-approval you should carefully check and ensure that you understand each of the conditions and what must be done to meet these. Standard conditions as an example are; Registered Valuation satisfactory to the bank, copy of the signed sale and purchase agreement satisfactory to the bank.
In order to obtain a strong pre-approval, you should provide as much information/documentation as necessary when submitting your application. The strongest pre-approvals usually result in a pre-approval with the least number of conditions attached.
A pre-approval is a lot of work, they expire within months, and do not help you avoid future checks into your situation later when you do find a property. Unless you are specifically looking to buy at auction and have the property identified already (with a copy of the sale and purchase agreement) then most of the time the pre-qualification of knowing your borrowing power will be sufficient.
It means across all the different banks and lenders, you know your borrowing power based on the information you provide the mortgage adviser helping you. Mortgage Advisers have the bank servicing calculators and can give you the answers you need quickly. The hard part is finding the right property and this is what you should focus 99% of your energy and time on.
The adviser will tell you not to waste your time if you have too many bad debts or bad account conduct and give you ideas on how to tidy things up and a plan for the future when you do find a property. At mhq.co.nz we can do credit checks quickly and for free and will happily look things up for you if you would like. You will want to avoid defaults and any declined applications as much as possible because it will just raise concerns for the bank later.
A credit check will identify strong and weak points of your financial profile and the bank will run their own checks. The bank will pore over your bank accounts looking for anything they do not like – this includes gambling and bad ‘habits’ like going into overdraft and not managing fees well.
Understanding the different bank and non-bank packages can be complicated unless you are an industry insider so if you do not want to work with us then find another mortgage adviser you know or trust.
What happens if you are approved or qualified for less than you hoped for? Keep saving or partner with someone else. If you have specific questions then hit reply, just ask. Lots of people have or get pre-approved then do not know what to do next.
We can help.
P.S. Tomorrow, we are looking at the habits that go into finding a property that will make you $100,000 by signing on the dotted line and how to talk with agents when you are looking at listings. If you want help getting a property under contract, then check this out.