Best Way to Get Preapproved for a Home Loan
Getting preapproved for a home loan is key in understanding your borrowing capacity, and knowing where your ambitions sit in the property market. However, the process for being preapproved isn’t always clear, with lenders needing to know the intricate details of your situation before coming to a conclusion. The pre-approved amount is not always certain as well, with many factors potentially altering how much you can borrow. Our property and finance experts weigh in below and let you know the best way to get preapproved for a home loan.
What is Preapproval?
Preapproval is when a financial institution provides an approximation of how much capital you can borrow for a home loan, on the proviso that you can meet certain conditions. These conditions usually require further information from the loanee, such as a valuation on the house they wish to purchase, or the requirement that they pay off existing debts or sell other assets. These conditions are why a preapproval is sometimes called a conditional approval.
Best Way to Getting Preapproved: Sure Up Your Credit History
Getting preapproved requires the lender to be certain that you will be able to pay a certain amount back. This certain amount is determined by the amount of risk the lender is taking on with your home loan application. To better the chances of you being approved this amount, you need to show your lender that you have your financial affairs in order. They will assess:
- Your credit history
- Credit score
- Debt-to-income ratio
- Employment history
- Assets and liabilities
Improving these factors can be done by paying your debts back on time. These can include items such as your phone bills, your credit cards, your water and electricity bills and any other debts you may have incurred. Not taking on unnecessary debt is also important. Banks will prefer you to have $30,000 in your bank account rather than a $30,000 debt for a new car. For more information on improving your financial affairs, click here.
Why Preapproval Isn’t Set in Stone
Whilst getting preapproved is something to be proud of, a certain pre-approved mortgage amount is not set in stone, and may be subject to a variety of mortgage factors. If your lender alters its lending policies and procedures, this may change your preapproved status, similarly if there are significant changes in the market, such as interest rate movements. If you require lenders mortgage insurance due to you loaning more than 80% of the property’s value, your preapproval may need to be subjected to that insurer’s policies.
Getting preapproved allows you to plan for what home you can afford to purchase, speed up the home-buying process and stand out with a competitive offer compared to other home-buyers. However, it can sometimes be a complicated process. Vision Property and Finance has provided hundreds of clients with award-winning property and financial services for over 20 years. If you need help arranging a preapproval, get in touch with us here.