Understanding the home loan approval process
The application process for a home loan is a complicated one. We often hear stories of buyers believing they are approved for a loan when, at the last minute, their approval is withdrawn and they're left in a panic, trying to to seek (fast) approval through another lender.
Here's a breakdown of the different levels of approval and what they actually mean for borrowers.
Loan pre-approval has different names with different lenders. It can be referred to as a conditional approval, indicative approval or approval in principle.
Pre-approval is only an indication from a lender that they are willing to approve the loan once a full application is submitted. In most cases, a pre-approved loan is not fully assessed by the lender and as such, the lender isn't obligated at this point to formally approve the loan when a buyer finds a property.
Most lenders offer to pre-approve a loan application online in as little as thirty minutes. On-the-spot approvals don't have time to be assessed by the lender's credit department, and that means, they are not indicative that a loan will be formally approved down the track.
Borrowers should not take on-the-spot approvals as a green light to make an offer on a property or bid at auction.The full loan application process
For buyers to have the confidence that they will receive formal approval, they are required to provide the following:
- A completed and signed application form
- Current payslips and tax returns
- Bank statement showing evidence of savings
- Declare any existing debts such as credit cards and personal loans
- A passport and driver's licence as proof of identification
- A full assessment of your loan application by the lender's credit department could take a few days.
- Has the application been accepted by the credit department?
- Do I need, or how can I avoid, lenders mortgage insurance?
- What are the conditions on approval?
- Is it safe to bid at auction or make an offer based on this pre-approval?
Any clients that are starting to look at properties to buy could save themselves a lot of time and stress by simply understanding what level of loan approval they have.