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PPG_Blog_Feb_image 3_loan pre-approval

Home buyers wishing to get a clear picture of how much they can borrow can benefit from obtaining a home loan pre-approval. A pre-approval is also known as a conditional approval (St George Bank and ANZ), indicative approval, approval in principal (Westpac uses the acronym AIP) or Homeseeker (CBA).

Pre-approval is a lender’s assessment of your credit worthiness for a loan. The assessment includes your ‘ability to repay’ a loan, based on your income, living expenses and repayments for existing loans. It also considers your ‘willingness to repay’ a loan, based on a number of factors such as your credit history, the stability of your employment and the number of times you change residential address.

A lender’s pre-approval brings peace of mind during the home hunting process, knowing that finance is on hand when you’ve found the home you’re ready to purchase. Usually valid for three months, pre-approval can be renewed if finding a property is taking a while.

Not all pre-approvals are created equal. Some pre-approvals – particularly those done in a few minutes, online, or by phone – won’t suitably test your ‘ability to repay’ or your ‘willingness to repay’. Always request that your pre-approval be fully assessed by the bank/lender. If for some reason a full assessment is not possible, then they will advise you that your pre-approval is not completely reliable.

To get a steadfast pre-approval it’s likely you’ll need to submit a full loan application. This means providing the following:

■ A completed and signed application form.

■ Evidence of your income such as payslips and or tax returns.

■ Evidence of your savings such as bank statements.

■ Evidence of your current debts such as credit cards, personal loans and home loans.

■ Identification documents, e.g. a drivers license (if you not an existing customer of the lender).

It is common for most people to seek a loan pre-approval before looking for a property to buy. However, some buyers choose not to get a pre-approval and in doing so are taking an enormous risk because they have no firm indication that they can get approved for a loan.

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