You would think getting a pre-approval would always be a benefit right? Wrong… it’s not always the best way to go!
When is it good?
There are plenty of circumstances where getting a pre-approval is the right way to go. If you’re going to auction you can’t even proceed without it! It can also be great if you need some extra negotiating or bargaining power with the real estate agent. If you have a pre-approval it could mean the difference between settling and missing out on that property you want so badly. It can also help you negotiate shorter settlements. With a pre-approval in place, half the finance application process is already done.
What are the downsides?
All the benefits seems so great right! Well, they come with some hefty consequences…
Pre-approvals have an expiry. You only have about 3 months depending on the lender. So if you get pre-approved then you’ve got 3 months to find a property and sign a purchase contract before you’ll need to refresh that same pre-approval. The refresh means providing updated information to the bank. But it gets worse… it will cause another credit enquiry on your credit report. Multiple credit reports in a short amount of time can really work against you. Your credit score is really important when the bank determines your future borrowing capacity. Getting pre-approval and constantly getting it refreshed could cause some serious damage to your credit score.
So if you’re serious about buying a property in 3 months and you’re confident you can action the pre-approval before it expires, it might be the way to go. But a pre-approval isn’t a guaranteed finance approval. Your home loan or investment loan can still be declined based on the valuation report once the property is valued. It can even be based on a change in circumstances or a change in the banks lending policy.
So when you’re looking for pre-approval just remember it’s not always as great as it sounds. But don’t let that deter you from making those investments, there are always other ways to stay competitive in the market!
If you want help finding out if a pre-approval can work for you contact the team at Rise High here or leave your details below!