Be Aware of Pre-Approval Pitfalls
The growing popularity of home loan pre-approvals has helped many prospective home buyers shop with added confidence, but not all pre-approvals are the same and consumers should be aware of the pitfalls of certain types of pre-approvals, according to leading mortgage broker Loan Market.
Loan Market spokesperson Paul Smith said the uptake in home buyers shopping around with pre-approval had more than doubled in the past two years at Loan Market and that it was an important advantage buyers could use to negotiate buying a property of interest.
“Pre-approval helps customers by giving them an exact amount they know they can afford and can give them an advantage when they’re bidding on a property they have interest in,” Mr Smith said.
Mr Smith said that online pre-approvals which do not fully asses the credit situation of a borrower, can give consumers a false sense of confidence that they can afford much more than they could actually borrow once all of the necessary documentation is thoroughly reviewed by a lender.
“Consumers should make sure their pre-approvals are a full assessment of their situation, rather than an automated answer from a system online. Anytime receive an approval to borrow a significant amount of money, without having to give any in-depth financial information, it’s not going to be an accurate or meaningful approval,” he said.
Mr Smith said that the danger with quick pre-approvals was that consumers would use those amounts to bid at auctions or make offers on properties thinking they’re property finances were ready-to-go.
Mr Smith offered the following tips for anyone looking at getting pre-approval for a potential home purchase:
- Make sure the approval is a full assessment.
- Disclose any previous noteworthy credit or finance blemishes that would may be uncovered at a later date.
- Be wary of a pre-approval that did not require an in-depth review of your historical and current financial situation.
- Avoid multiple pre-approvals as it could affect your credit rating.
- Check the period the pre-approval is valid for. Pre-approvals normally last between 3-6 months and extensions are normally easily done.