A pre-approval is when a lender approves you for a home loan before you actually decide on a house to buy. It’s also called conditional approval, and the word conditional matters: you’ve met most of the lender’s requirements, not all of them. The lender still has to assess the property and your position before the loan is formally approved. By being proactive with a pre-approval you reap a host of benefits that can be useful when buying a home.
What does a pre-approval actually give you?
A lender’s indication, before you choose a property, of what it is prepared to lend you. It is conditional, not a promise: the lender still has to assess the property and your position before it is formal. What it buys you is a clear budget to shop within.
Buying a home can be a stressful and complicated process. By obtaining a pre-approval you can rest easy knowing that once you decide on a home it can be yours.
How does pre-approval narrow your search?
It tells you what you can borrow, so you can rule out the homes above that line and spend your weekends on the ones inside it. Because the approval is conditional, treat the figure as the lender’s current view rather than a locked-in amount.
Getting a pre-approval will allow you to narrow down the home that fits within your budget. Knowing what you can borrow allows up to cut out the homes you can’t afford and spend more time looking at the homes you can.
Does pre-approval help when you make an offer?
It can. A seller weighing two similar offers will usually prefer the buyer whose finance is already assessed, because it is less likely to fall over. That credibility sometimes creates room to negotiate. It is an advantage, not a guarantee the offer will be accepted.
House sellers will be more willing to accept your offer if they know you are pre-approved. This gives your offer more credibility and the potential to negotiate a lower price than is listed. If the choice comes down to your offer and another at the same price the seller will likely choose yours knowing it comes with a pre-approval.
Why get pre-approved before an auction?
Because an auction moves fast and the pressure is real. A pre-approval tells you the ceiling before you start bidding, so you are working to a figure rather than to the room. Knowing your limit is what stops a bidding run turning into a commitment you cannot fund.
It’s easy to get lost in the heat of battle when you’re at an auction, fighting for the house of your dreams. A pre-approval gives you the knowledge you need to protect yourself from bidding more than you can afford. You’ll know the limits of your loan, and the limits of what you can and can’t afford so you protect yourself from any rash decisions.
Buying a home is a big decision that requires many hours of careful consideration and countless more searching for homes. Make the job of buying a home easier by obtaining a pre-approval.
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