Besser Tips on Understanding Bank Lending
As much as we would all love to go out and buy property tomorrow, it’s not that easy. Banks are tightening their lending practices, finding it hard to keep up with the ever-increasing property prices, and with the Reserve Bank looking at increasing interest rates in the near future, lenders are concerned that purchasers applying for mortgages now won’t be able to pay back. If you are ‘pre-approved,’ you need to buy a property now!
Often referred to as ‘approved’ in principle, the terms ‘conditional approval’ or ‘indicative approval’ is actually a ‘pre-approval.’ A lender agrees in principle to lend you an amount of money towards buying your home, but hasn’t fully approved it because the lending is based on the actual property you purchase. A ‘pre-approval’ gives you the confidence to make an offer on a property for sale. This ‘pre-approval’ has a time limit, usually 3 months, for you to make a purchase that allows the lender to assess the viability of the security of the loan. A ‘pre-approval’ assumes that your spending habits don’t change through the pre-approved’ period and you maintain your income, savings and spending habits.
Getting an ‘approval’ is the approval of an actual amount borrowed for a specific property. ‘Approvals’ are subject to the review of a complete loan application.
As the property market, the variable interest rate and your personal circumstances can change within the 3 month ‘pre-approval’ period, you have to go through the whole ‘pre-approval’ process again, if your ‘pre-approval’ expires.
To safeguard you in your loan application process, in the 12 months prior to applying for a home loan, get your financial ducks in a row. Get rid of any betting accounts, ‘buy now pay later’ schemes, reduce the number of credit or store cards, and review your spending habits and where you pull cash out of an ATM. A casual dinner withdrawing cash out of a Crown Casino ATM can ruin your whole application. Do what you can to have a clean financial record to help remove any red flags in your application, and maintain a budget that’s similar to what you write in your application. Get your tax return in order, especially if you’re self-employed, but know you’re in for a tedious process if you can’t secure a property. If you’re ready go with your pre-approval, contact one our friendly agents at Besser+Co to help find your dream home investment.