Home Loan Pre-Approval Options
Do I need home loan pre approvals?
Pre-approval administration costs
There are 2 different types of borrowing power qualifications.
The first is ‘pre-qualification’, mortgagehq will assess your borrowing power across banks and non-banks. We track each provider’s servicing criteria and test rates daily and know what option best suits you based on the details you have provided and the discussions we have had to date. If your circumstances change throughout the process or the testing criteria change, your spreadsheet will be updated.
The second is a ‘pre-approval’, issued by the bank. This typically takes 2-3 weeks and will have conditions including whether or not the property you find meets the banks’ criteria.
We will clearly indicate to you the pre-qualified borrowing power you have. Our calculations take into account restructuring and likely yields from properties you will be looking at. Our goal is to help you get the maximum borrowing amount possible (factoring in the responsible lending code and our limitations from banks and lenders).
If you want to borrow more than we outline as a possibility, and feel comfortable with the repayments, the best chance you have for getting this approved with the bank is to bring a LIVE DEAL to the table. This means a sale and purchase agreement ideally signed with minimal conditions and a finance period of 10 working days.
This gives the banks enough time to reassess and for you to answer any outlying questions. You can always talk to your adviser about sale and purchase agreements.
The bank will move a lot faster and potentially overlook minor challenges (if there are any) with your application for funding on this property (and your portfolio).
Pre-qualification is, in our opinion, superior to a pre-approval because it does not expire, does not require exhaustive and repeated documentation, does not require repeated credit checks and constant delays. Most people have to get their pre-approvals renewed 2-3x and do not buy within the 3 month time period.
As you probably do not know the specific property you are looking at buying yet, pre-approval may not be appropriate as they come with conditions anyway. Some properties will have minor issues with consents or LIM, and the bank even though they provided the pre-approval, will not approve this property. It just creates more work for you and the professionals helping you.
If you first get the property under contract, then we can assess (based on our experience) whether the bank we earlier identified as best-fit is going to suit you for this purchase. Some banks are very particular about some property details (ie cladding, unconsented, flood zone, too small, wrong location or building etc).
If you still want to push forward with a pre-approval before finding a property, we are 100% happy to process this for you. The likely time frame due to bank turnaround times is 2-3 weeks.
Mortgagehq will charge an administration cost following the expiry of any unused pre-approval (new purchase or top-up). The cost of this is tied to the complexity of your application, and an invoice will be issued to you upon the expiry of the approval if no purchase or meaningful progress is made within the approval’s validity period (usually 3 months with a potential extension period). Complexity level 1 has a cost of $250, level 2 a cost of $350 and level 3 a cost of $450; your adviser will explain which cost applies to your position prior to the submission of your application.
Why get a pre-approval?
Why bother getting a mortgage pre-approval? Well, even if you’re walking around with a 50% deposit (a super low LVR), and a big income to support any lending you want, it still pays to consider getting pre-approval with your bank of choice or the bank suggested by a mortgage adviser with access to all banks.
To create an advantage for yourself when negotiating on a property and bidding against other potential buyers, if you can get a property under contract without a finance condition where others need to check that their finance will be approved, you can win the property simply through having fewer conditions. The agent will not need to worry that your finance is not yet approved and the property is needlessly tied up under contract for 10 days.
When applying for pre-approval there is always a chance the bank might decline your application based on things you have not anticipated like bad account conduct, overdrafts and missed payments, too much other debt, too many loan facilities already, unpredictable income… Every factor that works against you may also mean the bank adds various conditions to your pre-approval.
What may be of concern to you is getting the biggest approval possible. This is not necessarily to maximise your lending but to make sure you do not miss out on your dream home simply because somebody out-bid you by $10-15,000 and you did not pick the right lender for maximum lending.
What you might not know is banks have different ways of figuring out how much they would lend you based on certain criteria. This can include your cars, age, income, income types, the number of dependents etc and your borrowing power might be $100,000+ or higher by going to another bank. Take the online mortgage snapshot to figure out your borrowing power and complete the full form not just the short form to find out what bank and how much you can get.
To put specific numbers in play, this means with some banks/lenders you might be able to refinance or buy with $500,000 of lending and simply walking across the street to a different provider means you can get $600,000 – all because of the way that lender assesses your situation. Working with a mortgage adviser will ensure your details are presented in the best light with concerns lenders may have addressed early and in the application.