Pre-approve your Mortgage

Recent sales figures show that without a doubt the property market has been very active lately and many real estate agents are now short of listings. In particular, first home buyers and investors who have been sitting on the sidelines for many months now are coming back to the market in droves.

Banks are still taking a cautious approach with their lending, however. Whereas at the peak of the market it was almost too easy to get a mortgage, lenders are being a little fussier now. There is good reason to be cautious, with unemployment figures continuing to rise.

In the current market climate, buyers are well advised to obtain a mortgage pre-approval before they start looking at properties.

It’s best to know what a lender will approve before you waste time looking at properties outside your price range. There is always a tendency for buyers to want to look at properties just above what they can afford and that only leads to disillusionment on both sides of the bargaining table.

If you are a first home buyer it pays to have a good track record both for what you spend and what you save. It’s all very well for Mum and Dad to give you the deposit, but your lender will look upon you much more favourably if you have saved hard to get what you want.

Don’t forget your bank has a record of everything you have spent, so if you have been spending up large on luxuries that you can’t afford this may well count against you. If you have consistently gone over your overdraft limits and been careless in how you have managed your money, this will work against you too.

Before approving a mortgage, your lender will want to know how much equity or deposit you will have for the property you want to buy and they will want reassurance that your income will be sufficient to cover your mortgage payments as well as all your other living expenses.

A credit check will be done, so if you have defaulted on other loans or amounts owed to power and phone companies this will count against you. It is a good idea to work with a mortgage broker who can help you put all the relevant information together for the lender and find you the best deal. Just because one lender turns you down doesn’t mean to say that all lenders will.

A mortgage pre-approval will last anywhere between 90 and 120 days, but it won’t be valid forever, so check to see whether it has expired before you put an offer on a property. If you have a pre-approval and if your mortgage broker has done a thorough job, you can put in an offer that is either not subject to finance or which has a clause with finance to be confirmed in a short period – say 3 days or so. This may give you extra bargaining power.

If you don’t make your offer subject to finance you will need to be certain that your pre-approval is watertight. As part of your pre-approval, you might also want to have a rate lock, which will set the interest rate for your mortgage in the event that you go ahead. With interest rates on the rise, this is worth considering. You don’t pay for the rate lock unless you don’t go ahead with the mortgage.

Obtaining mortgage finance is one of the time-consuming aspects of buying a property, so getting it done in advance means you can then focus on finding the perfect house and negotiating a good price.