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Mortgage Basics

Mortgage Pre-Approval 101: Are You Locked Into One?

Amidst economic changes and periods of uncertainty, the Sydney property market has always remained resilient through it all. But when you’re on the lookout for a property of your own, fluctuating price points can create plenty of challenges for buyers everywhere. 

A pre-approval can give you an edge when it comes to your property search, but what exactly is it and are you locking yourself into one?

Let’s explore how a pre-approval works, why it can be such a useful tool, and how you can make the most of it to land your property of choice.

What is A Mortgage Pre-Approval?

A mortgage pre-approval is a statement from a lender that says they’ve agreed to lend you a certain amount of money toward your property purchase. The reason it has a prefix though is that the numbers are still theoretical. Until you have found a property, had it valued and accepted by the lender as suitable security for the loan and they grant formal approval, it’s still an offer that the lender can back out of. A pre-approval is essentially the lender telling you that based on you as a person, they are happy to lend you the money. Formal approval requires the two elements of a mortgage contract, the borrower (you) and the security (the property). That being said, we still recommend it.

You are not strictly required to go through the pre-approval process, but with the property market such as it is, getting a pre-approval can help you shop and bid with more confidence. 

To fast track your pre-approval application, ensure you have the necessary documents ready such as your proof of identification, current payslips and account statements. If you’re successful, you should receive a letter indicating the amount you have been pre-approved. In most cases, your home loan pre-approval will be valid for 90 days. 

Check our previous article on how to prepare for a house action and increase your chance of success.

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When Should I Apply for Mortgage Pre-Approval?

The best time to apply for a pre-approval is when you’re ready to shop. Because pre-approval letters are only valid for between 60–90 days, that’s why it’s important not to get pre-approved too early.

Your mortgage broker can help put your needs to paper, so you can check your options and find the most suitable bank without having to go through all of them. 

The market is forever changing and sometimes you need a pre-approval at the last minute. Shore Private offers a 15-minute loan approval system using intelligent credit. See the video below to learn more about our fast approval process.

Am I Locked Into a Pre-approval?

No. A pre-approval does not mean that you’re fully locked in. In essence, getting a pre-approval is simply a way to have a bank vouch for you as an eligible borrower. 

Keep in mind that you are not locked into any credit offer until you sign the mortgage contracts and settle the loan after finding a property and moving to formal approval.

Benefits of Pre-Approval

The best part of pre-approval is that it helps you set up your budget to start planning for a realistic dream home. Whether you’re doing a traditional search or planning to hit the auctions, you know how much you can spend.

For instance, let’s say that you’re interested in two homes valued at $500,000 and $600,000 respectively. If you’re only pre-approved for $525,000, you’ll know how much of your own funds you’ll have to contribute should you want to look at the more expensive home. Pre-Approvals factor in an agreed LVR. You can’t go to Auction and “play” with your deposit amount. You can only decide to contribute more, all changes should be put to your broker and the bank. 

A Pre-approval can also help you stand out with the owner, which is critical in such a tight market. The pre-approval is a statement to the seller that you’ve done your homework and that your offer is legitimate. Having a pre-approval doesn’t mean the sale can’t fall apart still, but it’s far less likely when the lender has done their homework too.

Finding the Right Broker for Pre-Approval: How Shore Financial Can Help

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It can be a little nerve-wracking for even experienced buyers to conquer the market today. If you’re looking for Sydney mortgage brokers who can help you secure a loan, Shore Financial is here to help.

A Pre-Approval is mainly based on the borrower, so they can fall through when something in the borrower’s scenario changes such as a job loss, employment or government regulation changes. 

If you want to limit the more unpleasant surprises of a home search, contact us today to see what we can do for you.

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