Purchasing your perfect home or investment property is an exciting and challenging journey, and usually is one of the largest investments in your life!
It is therefore important to remain level headed throughout the excitement, to understand what you may be able to afford, and to engage with a professional to help you through the various stages of buying. Talking to a finance professional about obtaining a Pre-Approval is the best and safest way to start this journey.
A Pre-Approval, otherwise known as an Approval in Principal (AIP) can be obtained by first considering your property goals. You can then work towards shaping your potential borrowing capacity and a broader strategy. It is worth then researching the market, discussing and agreeing to the most suitable lender for your needs. Then comes the process of paperwork and bank/lender discussions to work through.
Examples of documents required for Pre-Approval
- Proof of income (pay slips, tax returns if you are self-employed).
- Monthly living expenses (we offer a template to assist you in allowing for all of your normal living costs).
- Information about existing debts such as loans, credit cards, HELP debt.
There are many benefits of organising a Pre-Approval prior to buying or even locating the right property. For example:
- It provides an indicative guide on how much you can afford to borrow, and therefore how much you may be able to spend on a property.
- Financial Safeguard – avoids a costly situation, where you may have won a property at an auction, later to discover you cannot satisfy a lender’s ongoing servicing requirements or loan conditions.
- It allows you to ‘shop with confidence’ and bid at an auction should your dream home come onto the market.
- Is a handy tool for price negotiations – It shows your estate agent that you are serious about buying a home. Some agents won’t spend their time showing you homes in case you don’t come through with the financing.
- The approval is valid for up to 3-6 months. Your circumstances, and the home loan market, can change rapidly. Consulting a finance professional ensures that you have a clear idea of how long your home loan Pre-Approval is valid for. The time frame will depend on the relevant lender and it is usually a simple process to update the Pre-Approval.
Proceeding to Formal Approval
The Pre-Approval is simply an indication of your ability to borrow from a lender, based on the information provided at that time. Once you have successfully found your dream property, you can progress your loan position to a Formal Approval, and prepare for settlement of the property.