Are You Risking Your Deposit?
Making sure your home loan is pre-approved before you start your property hunt has always been the ideal approach. Now however, it is more important than ever. The lending world is changing and policies are becoming tighter. This means finance is becoming more difficult to obtain so you need to know where you are positioned before you make an offer on a property.
When you are obtaining your pre-approval, you should make sure it is fully assessed. There are some lenders who will provide a quick pre-approval that is computer generated, however the lender has not verified the inputted information to make sure that it fits with their lending criteria. Your mortgage broker can help you navigate the suitable pre-approval options.
Making sure you have a fully assessed pre-approval is particularly important if you are purchasing in what is largely an auction market. These contracts are generally unconditional, meaning if you are not able to get your finance approved and settle on the property, you risk losing your deposit. In most cases this is 10% of the purchase price so it is not something many of us can afford to lose.
There are a number of factors that go into your borrowing capacity over and above your income. The level of debt you carry (including credit card limits), the time you have been in your employment, or the amount of deposit you have are all things that can affect your borrowing capacity. There may be issues with individual borrowers that you may not be aware of, such as credit history or the age of the borrower. Even the type of property and proposed location can be an issue. These are things that you should know about before you commit to making an offer on a property.
The final decision always comes down to the overall assessment, which includes a valuation being done on the property. If you are buying an unusual property, or something in an area with a lot of the same type of property for sale (i.e. a high-density apartment building or new housing estate), it is always wise to check on the lender’s appetite for that type of dwelling and area. This is also the same when it comes to properties outside the metro area. Even if it doesn’t seem far away, there may be issues with location. You should discuss the type of property or location you are considering with your mortgage broker so they can help you ascertain the risks here.
Ideally you would make your offer subject to finance approval, thus protecting your deposit should you not be able to obtain finance. However, this is not always possible so having a fully assessed and current pre-approval can be the next best thing.
Before you risk your deposit, make sure you know you can finance what you need. Discussing your options with your mortgage broker is more important now than ever. We can help you with the process of seeking a pre-approval prior to purchasing your property.