29 May 2020

Like any major life decision, its necessary to get your ducks in row when looking to buy a house, whether it be your first home purchase or one of many. That is where a pre-approval can come in extremely handy.

What is a mortgage pre-approval?

A loan pre-approval is when a lender has agreed in principle, to lend you a certain sum of money towards the purchase of a property, usually valid for a period of three months. Whilst not a necessity in the home buying journey, it can make the process a lot easier.

Why apply for a mortgage pre-approval?

You know where you stand

When you have been pre-approved by a lender that does a full assessment of your position, you will be armed with the knowledge of exactly what you are able to borrow and therefore what your home buying budget is.

Any issues can be dealt with without a finance due date looming

Not everyone has a clear-cut financial position and in a time when lenders scrutinise applications with a lot more vigor, any additional questions that may need answering or additional documentation required to be sourced can be done so in the knowledge that any delays will not result in missing a finance due date.

Your formal approval will likely be granted quickly

Once you have a pre-approval in place the last piece of the puzzle is usually just finding an acceptable property. Once this is done the only requirement will most likely be to forward a contract of sale to the lender along with the return of an acceptable valuation of the purchase property. Without the need for a full credit assessment, the path to a formal approval is much more effortless and extremely swift.

It gives you leverage when making an offer

Going into the negotiation process is likely to be easier when you are armed with a mortgage pre-approval. Having a pre-approval in place demonstrates that your financial position has already been assessed by your chosen lender and deemed acceptable by them for credit. This therefore means your application is likely to be formally approved and fast. For a vendor who is motivated to sell, this can act in your favour when they are deciding to accept an offer.

It alleviates the stress of your property purchase

Property buying can be a stressful process whether you are purchasing your first home or first in the line of many. Doing your due diligence with your finance is crucial so you know exactly what your borrowing capacity is to ensure you are equipped to do what you wish. Embarking on an emotionally charged journey such as this needs to be undertaken with the correct groundwork covered, to do otherwise means placing yourself in a position of potential worry and stress that could be avoided.

Does a mortgage pre-approval guarantee a formal approval?

No, it does not. The key thing to consider is that when a lender pre-approves your application, they are approving you “in principle”, meaning that they still reserve the right not to grant full approval in certain instances.

So, when might bank not honour your pre-approval?

The property chosen

The lender will always grant your pre-approval on the basis that the property is acceptable to them. They may deem the property unacceptable due to the type of property it is, if it is in a concerning state of disrepair or is the valuation report highlights any risks or aspects outside their policy.

A change in your circumstance

The lender will always reserve the right to request updated information such as pay slips to ensure your position has not altered before they will issue formal approval. If, for instance, you have a change in your income that negatively impacts your capacity to borrow then the bank may choose not to grant formal approval as your position is now outside their policy.

Mortgage pre-approvals are a great way to start your home buying journey as it gives you a clear idea of what your budget is, gives you bargaining power when making an offer and makes the process much quicker and less stressful. Your mortgage broker will be able to guide you through the process and get you on the path to property ownership quicker and easier with a pre-approval.

Call our team at Blackburne Mortgage Broking today for more information.

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