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What Is Pre-Approval?

What Is Pre-Approval?

What is pre-approval?

Pre-approval can be called different things by different lenders; “conditional approval”, “indicative approval” or “approval in principle” but essentially, they all mean the same thing. It means your loan has been pre-assessed by a bank, and they can confirm with you how much you can borrow.


The Process

You, as the buyer, approach a bank/lender, who will check: – evidence of your income – savings, and – debts (such as credit cards and other loans), and then provide assurances that you will be able to get a loan up to a certain amount. Because there are conditions attached it is not a guarantee that your application will be approved, it is merely an indicator that your application fits the criteria.


How can pre-approval help me?

Knowing approximately how much you can borrow will ensure you look within an affordable price range. With pre-approval, you can go ahead and make an offer on a property or go to auction, and you can be confident that you have the money to purchase. Generally, with pre-approval you’re more likely to obtain finance quickly and the purchase process will be smoother.


Two types of pre-approval:

Check with your lender which type they use. This will mean you can be sure how much work has been done and how much you should rely on it.

  1. FULL ASSESSMENT: This type will take a few days to be issued as it is the most thorough, but this also means it can be more heavily relied upon. Your lender’s credit department will complete a full assessment including reviewing your documents and conducting a credit check. If there’s anything that requires clarifying from the credit report or other documents, you will be contacted. The lender then proceeds to issue a pre-approval subject to a satisfactory valuation of the property.
  2. SYSTEM GENERATED: This type of pre-approval can be received in a shorter amount of time, sometimes on the spot or within a few hours. You may submit a full application and supporting documents, but these will not go through the full assessment process. The result is system generated and the finer details of the credit report and documents have not been evaluated by a credit assessor. This type of pre-approval has more conditions and relies heavily on the information that you included in your application.


Important things to note:

  • Pre-approvals expire. For most lenders it’s been 3-6 months. Ask your lender about the expiry date and what will happen if you don’t find a property within that time.
  • Certain types of properties may not be acceptable to some lenders, for example: hobby farms, certain units, a property with large power lines close to it, a property that is in poor repair, etc. When you are closing in on potential properties, speak with your lender about what types of properties they do not accept.
  • Be wary about how many pre-approvals you apply for. Each time you submit a pre-approval application, the lender will run a credit check and this leaves an enquiry on your file. Multiple enquiries can impact your credit rating negatively. So, it is advisable to only apply with the lender you intend to proceed with.
  • Changing personal/financial circumstances may mean you will not be approved. Things like, changing jobs, going part time, falling pregnant, taking on a new loan, spending your deposit, etc. are all things that will require the lender to re-assess your loan.
  • Interest rate changes can affect pre-approval. Ask you lender about how increased interest rates could affect your maximum borrowing amount.


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