Home Loan Pre-Approval
A pre-approval is quite simply an indication from a lender that they would be prepared to lend money to a borrower based on the information that they have been provided with and subject to certain conditions.
Pre-approvals can range from being a piece of paper that has very little value to just stopping short of being a full approval from a lender but the most disturbing aspect of a pre approval is that the value of it varies from lender to lender.
As a general statement, the more information that is provided to a lender before a pre approval is obtained, the more value the pre approval will have so if you enter some details into a website of any kind such as your income, your savings and any other very general information that you have not yet provided to the lender for verification, then you may well get a pre approval within 60 seconds or so but it will have very little value and is almost like not even having a pre approval in the first place.
Quite simply, it is not worth the paper that it is written on.
On the other hand, if you have actually provided evidence of income, savings, employment and assets and liabilities to name a few and this has been submitted to a lender, then your application may have been assessed as if it was a full application and the pre approval that you get from the lender can be a much stronger pre approval than anything that you can get in just 60 seconds.
Having said this, a pre approval is just that – an indication from a lender that they would be prepared to lend you money subject to a number of conditions that they list on the pre approval and these can be significant.
The most common of these is that any pre approval will be subject to a satisfactory valuation of the property being chosen but there could be others.
So, at the end of the day, a pre approval can range from being a next to useless piece of paper through to something that you can feel comfortable with when you go shopping. But you must remember that a pre approval is not an offer of a loan and if anyone tries to tell you differently, they are wrong.
The importance of this was never more evident than when a real estate agent tried to convince a client that he did not have to include a finance clause in a contract to purchase a property because he had a pre approval that he could rely on.
This would have been a very bad move and it’s hard to believe that the real estate agent was putting his own self interest first.