By now you’re probably well aware that the Banking Royal Commission has led to a lot of changes in the home loan environment, including tighter lending conditions.
Now more than ever, it pays to have your home loan pre-approved before you even begin shopping around.
As a result of the commission, banks are now being much more conservative in their lending practices, making it harder for customers to get home loans approved. The process is now taking a lot longer and requiring more checks and balances. What’s more, it’s likely that you will be approved to borrow quite a bit less than you would have been 12 to 24 months ago.
While none of this is great news for would-be buyers, there are a number of advantages to being finance ready before you begin your search in earnest. Not having pre-approval before you begin looking could really limit your chances of finding your dream home. Here’s why it matters:
Focus your search
While most of us wish we had more to spend, knowing exactly what you can afford from the outset will save you time as it will force you to focus on properties that are within your reach. This narrows your search and also saves you from the disappointment of finding your dream home, only to discover later that you can’t actually afford it.
Sort out your budget
The process of pre-approval also forces you to get your finances in order and consider your budget. This is critical when it comes to buying as you need to be sure that you can realistically afford to repay your home loan while maintaining the lifestyle you want.
Remove any obstacles
If there are any issues with your ability to buy, such as a poor credit score or too much debt, it’s better to know sooner rather than later. This saves both you and sellers time, as there’s not much point looking – letting alone requesting contracts or making an offer – if you’re not actually in a position to buy yet. House hunting can be exhausting and stressful; save your energy and resources for when you’re really ready.
Be taken seriously
When you make it clear that you have your finances in order and are pre-approved, vendors and their real estate agents know that you’re a serious contender, not a tyre kicker idly browsing or someone just researching the market. They will give you more time, energy and attention, which can give you invaluable information. Agents are also likely to make the effort to inform you about any other properties that meet your budget and search criteria.
Better bidding power
Whether you are bidding at an auction or negotiating with a vendor through their agent, knowing your exact ceiling – and that you’re ready to buy – gives you confidence in the process. This shows and it can translate to a better outcome.
A faster settlement
If your loan is pre-approved you may be able to negotiate a shorter settlement period if necessary, which can be an advantage should you encounter vendors who are in a particular hurry to sell.
Pre-approval: Need to know
Getting pre-approval for a home loan is the first step toward buying a property. When you apply, lenders will run a background check on you to determine what your credit is like and how big a loan they think you can afford to pay back. You will need sufficient official identification (generally 100 points worth), as well as proof of employment, income, savings, debt and assets, along with your completed home loan application.
Contact me today if you’d like more advice on getting pre-approval and your home search in Sydney’s inner city.