Be aware of pre-approval pitfalls

Added by on April 12, 2013

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,” said Smith.

Mr Smith added, 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, added Smith.

According to Smith, 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.

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 pre-approval’s validity period – pre-approvals normally last between 3-6 months and extensions are normally easily done.

About Loan Market

Founded in 1994, Loan Market helps home owners across Australia and New Zealand find the right home loan. With a team of over 600 mortgage brokers that assisted over 30,000 people last year and with 9/10 customers saying they would use Loan Market again.

Loan Market is part of the Ray White Group of companies, which were established over a century ago and is one of the largest family owned companies in Australia with over $25 billion in real estate sales annually and international operations in Asia, the Middle East and New Zealand.