Why is pre-approval important?
It provides you with a clear budget, strengthens your offer, and gives you a competitive edge in the real estate market. It's a good idea to get pre-approved even if you're not currently planning to buy. Pre-approval gives you a clear understanding of how much you can afford and helps you understand your financial position better. It estimates the amount you could qualify for a home based on your credit, debt, employment history, and income.
The benefits of a bond pre-approval:
- You'll know what you can realistically afford, so you can start house hunting with the right price bracket in mind, which makes you a better-informed shopper.
- You'll know your credit score - ideally your credit score should be above 600 in order to have your home loan application approved by the bank. If you have a low credit score, you should look at ways to improve it, such as by paying your accounts in full and on time, clearing your credit card debt, and closing accounts once you've paid the balance owed.
- As a qualified buyer, you make your offer to the seller that much stronger by knowing in advance how much you can afford to pay, therefore making you a more attractive buyer to potential sellers.
- Act fast on the market - Timing is everything with a sale. If you find the right property, you don't want to lose out because your finances took too long to clear. Pre-approval can speed up the process and it also makes securing your home loan easier.
- Have peace of mind - If left until the last minute, buyers can often be unpleasantly surprised by how much home loan providers are prepared to lend them. While affordability calculators can give you a rough idea, it isn't equivalent to an assessment by a financial institution. By getting pre-approval, you can remove any potential disappointment from the process and, instead search for properties within your means.
How do you get a bond pre-approval?
Depending on the home loan provider, you can either apply on an online system or speak to a human assessor. ooba, for example provides both options for potential homeowners.
Although pre-approval doesn't mean that the bank has approved your bond application, it does give you an indication of what the big banks will be willing to offer you based on your affordability. It gives you an accurate measure of your purchasing power.