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Pre approvals

A pre approval is a very useful tool in your quest to buy your first home. A pre approval is where a lender will do a basic assessment of your income, they will then give you a dollar figure that you can borrow up to. I would suggest when getting a mortgage pre approval, you make it for a little more than you would like to borrow and spend on your first home. This is because if you decide to borrow more than what is listed on your pre approval, the pre approval is no longer valid, it will need to be re assessed. Therefore if using the pre approval as a real estate negotiating tool, it will become of little use to you. Generally a mortgage pre approval will last between 3-6 months, some lenders may require some current debt and income verification, if the time limits are stretched out.

Many real estate agents I have spoken to, have commented on the importance of a mortgage pre approval. Stating it often adds a lot more weight to your offer, and shows you have taken the time to plan and think about buying your first home. You need to consider that a vendor (seller), may have to take their property off the market for over a month whilst you are finalizing your mortgage finance, so they want some comfort in knowing that you are likely to be able to close the deal, in many instances a pre approval is all you can offer for the sellers comfort.

A mortgage pre approval will involve a lender verifying your income, savings (in some instances) and credit performance. They will be checking to see thatyour existing commitments and repayments have been made on time, that there are no arrears or late penalties on any loans or credit cards you have. They will also be looking to see if you have exceeded your credit card limits. So these are all things to consider before you put your application into a lender. It may pay to speak to a finance broker to see if you need to take steps to manage your finances better leading up to your application, to make you a more appealing candidate for a mortgage.

The bank will also do a credit check to see how your credit history looks. When they check up on your credit they are looking to see that there have been no bad credit judgments entered against you, these can be for unpaid bills, non payment of debts and sometimes there are paid defaults that haven't been removed or mistaken entries. If you think you have bad credit it would pay to speak to one of our finance brokers by clicking here.  

Another thing lenders look for is how 'busy' your credit report is. Every time you apply for credit the institution (lender) you apply to may perform a credit check. For example- You apply to Westpac for a credit card for $5,000, so the credit entry may read 05/07/2007, Westpac Banking Corporation Card Services $5,000. The bank are checking here to a degree to see how responsible with credit you are, they don't want to see a long list of enquiries. They are also checking what was applied for verses what is listed in the liabilities you show in your finance application (pre approval). If there are applied for facilities recently that aren't in listed your assets and liabilities, the bank may ask you for a written explanation asking what was the outcome of those applications were, and why they did or didn't go ahead.

All things said it is best to have a fairly inactive credit file, you can access your credit file information if you wish to by clicking here.

Not having a mortgage pre approval doesn't mean you shouldn't be looking at putting an offer in on a property, if you are looking at, or in the process of getting a pre approval, or have seen a finance broker, you can always direct the selling agent to speak to your broker to help your cause. If the selling real estate agent should want to see your pre approval, under no circumstances show the maximum loan amount until the negotiations have concluded! You don't want the agent knowing how much you can afford to pay! So having a pre approval isn't a necessity, but it seems the consensus is that it does you no harm and can only help your chances in the negotiation and purchase of your first home.

 
The 7 steps to buying your first home