4 things you need to know about pre approved finance

Often when writing an offer a buyer will tell the real estate agent that finance will not be a problem or that they have pre approval. The words, “finance will not be problem” may be true but often when this line is used my experience tells me that the buyer has no idea of what they can borrow and therefore offer on the property.

The other line used is that the buyer has pre approval. As a seller it is very important to know that finance is likely to come through without a problem and a pre approval from a financial institution is a strong indication.

However, a pre approval is not necessarily the golden ticket. If you are looking to obtaining such as document as a buyer or if you are a seller being told that a buyer has a pre approval letter please be aware that:

1) A pre approval does not mean that a buyer can make a cash offer as it is still subject to normal finance criteria and it may still take as long for the bank to provide an unconditional finance approval.

2) A pre approval is time limited (usually 3 months but it may differ from bank to bank).

3) As a buyer, you can walk into some banks off the street, they will ask a couple of questions and provide you with a letter that most buyers believe is a pre approval. Some bank websites also has a feature where you can check what you can borrow, which is basically the same thing. It is not, it is only a vague indication so please check the small print. Unless the credit department has carried out a full credit check, it is not a pre approval and that takes a couple of days.

4) A pre approval will always be subjects to a number of items, such as valuation and that your financial situation does not change.

There is no need to have a pre approval ready when buying a property but it is always a good idea to know how much you can borrow, what the repayments are going to be, what kind of deposit is required etc before you write an offer.

If your situation is somewhat different, such as working casual, part time or have just come out of bankruptcy then a pre approval is a very good idea. In particularly for a piece of mind.

If you are looking to purchase a property and prefers to deal directly with a bank, ask to have one of their mobile lenders come out and see you. They will require payslips, proof of income etc so it is much better to meet at home. Alternatively, use a mortgage broker who will do the same thing, but will consider more than one bank.

Readers should always seek their own independent advice prior to making any decisions regarding property or finances.