Join Australia's most dynamic and respected property investment community

Loan Pre-approval - inpact on credit rating

Discussion in 'Property Finance' started by pugstar205, 1st Nov, 2015.

  1. pugstar205

    pugstar205 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    109
    Location:
    Brisbane
    Hi,

    I've been looking for the answer to this question through the internet, but keep reading contrasting information.

    I am pre-approved for a specific figure for the purchase on an investment property with a second tier lender - the loan is to be secured against the property once purchased. Recently, my pre-approval expired so I sent in some payslips and they sent me a letter saying that I was again pre-approved until the end of October.

    As it's now expired again I'm not sure whether to keep renewing my pre-approval so it's up to date? My concern is that each time I renew it could be recorded as an 'enquiry' for finance and impact my rating. Is this the case?

    Any advice is appreciated.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,973
    Location:
    Sydney
    Yes they will probably be doing another credit check at each renewal - probably - so this could effect credit scoring, but it is not such a big impact.
     
    pugstar205 likes this.
  3. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    857
    Location:
    Sydney (West) and Canberra
    It will most likely be another credit enquiry (you can check this by viewing your credit file). Overall impact on your financing may not be very much with one enquiry every few months. Its when you start getting to 3-4+ within a 6 month window where it may come back to bite you if you're planning on getting funds from a lender that credit scores. Usually the bigger banks are the ones that adopt credit scoring while smaller ones often don't and have it manually reviewed. In these cases a simple explanation suffices generally and the assessor won't be too concerned if all else is OK.

    Cheers,
    Redom
     
  4. pugstar205

    pugstar205 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    109
    Location:
    Brisbane
    Thanks - appreciated. Do you think it is necessary to have the pre-approval in place? It doesn't make obtaining final financial approval any quicker as they have advised me to request 21 days (minimum) for finance on a contract regardless of whether I am pre-approved or starting from scratch (applying) with them.
     
  5. Redom

    Redom Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    857
    Location:
    Sydney (West) and Canberra
    In most cases if your getting a finance clause then its unnecessary.

    If your situation fits inside banks standard policy and you're not purchasing at auction, its probably not worth extending.

    If your broker got you an exception or its a non standard case, then it may be worth having it there before purchasing (e.g. you haven't started working but have a future employment contract and one lender is happy to accept).

    Cheers,
    Redom
     
    pugstar205 likes this.
  6. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,144
    Location:
    Canberra and Sydney
    If you've been preapproved once I can't see much benefit of getting preapproved with the same lender again - it will do more harm than good IMO. I generally advise my clients to avoid this unless there's a specific reason for it.
     
    pugstar205 likes this.
  7. pugstar205

    pugstar205 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    109
    Location:
    Brisbane
    Thanks all. I won't keep renewing it.

    My circumstances make me low risk (I believe). I'm a public servant on a fixed income, have PPOR as good as paid off and already have a LoC with them (untouched). As the approval is for my first IP purchase (80% LVR), I can't see them knocking me back.

    Cheers again.
     
  8. jpcashflow

    jpcashflow Well-Known Member Business Member

    Joined:
    21st Jun, 2015
    Posts:
    371
    Location:
    Melbourne
    As long as your broker can explain this to the credit officer then there is no harm at all.
    May I ask why you want to do your pre approval again?
     
  9. pugstar205

    pugstar205 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    109
    Location:
    Brisbane
    Hi, there's no particular reason. I find that, in Queensland, it sometimes helps with making offers if the agent knows that you're unlikely to be knocked back on finance. A decent upfront deposit and pre-approval for finance gives the seller confidence that you're in it to buy and that they're not going to be stuffed around with crashed contracts.
    It also gives me peace of mind that I can make an offer on a contract and I'm more likely than not going to be able to fulfill the conditions of my offer.
     
  10. Special order

    Special order Well-Known Member

    Joined:
    7th Jul, 2015
    Posts:
    211
    Location:
    Nsw
    Yes I would be concerned if I was you.

    The biggest hurdle you are going to face is when you try to by in Logan or Gold Coast you will be knocked back
     
  11. KayTea

    KayTea Well-Known Member

    Joined:
    10th Aug, 2015
    Posts:
    285
    Location:
    Brisbane
    If only this was always the reality. I was pre-approved (with NAB), and had an offer accepted on a purchase (that saw me only borrowing what I had pre-approval for, and before that pre-approval expired).

    However, when it cam time to borrow the money, the bank then refused to lend the funds (my broker, who'd organised the pre-approval, and the BA, were both in shock). Worse part was, then NAB couldn't really tell us why they wouldn't approve the loan, and after a couple of contract extensions and other problems, we had to let the contract crash.

    It was a very sobering experience, to say the least.
     
  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,766
    Location:
    Perth WA
    Did you ever find out why?
     
  13. KayTea

    KayTea Well-Known Member

    Joined:
    10th Aug, 2015
    Posts:
    285
    Location:
    Brisbane
    Nope. The broker even tried to get an answer out of the State Manager.

    There were a lot of unanswered phone calls, and buck-passing, but we never really did get a definitive answer.

    It was an incredibly stressful few weeks, and after the whole thing 'collapsed', it took me quite a few months to get the guts again to go into property investing (it was supposed to be the purchase of my first IP, and it had all been researched and sorted by a BA - that was intended to stop me from making any newbie mistakes and minimise the chances of problems………).
     
  14. jpcashflow

    jpcashflow Well-Known Member Business Member

    Joined:
    21st Jun, 2015
    Posts:
    371
    Location:
    Melbourne
    That is happening every where at the moment even Melbourne has been like that. I have been advising my customers that the agent is more then welcome to call me to see how fit they are in terms of getting finance vs a paper.
     
    pugstar205 likes this.
  15. pugstar205

    pugstar205 Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    109
    Location:
    Brisbane
    Sorry to hear that, but thanks for sharing. I'm not sure what to make of it. It sounds like you've done the right thing by using a BA and mortgage broker ... it shows that nothing is certain.

    I'm probably going to sit on the sideline for the rest of this year and see what 2016 brings. I've got a gut feeling that something will happen that will affect all markets. I'm not sure what and don't subscribe to the big Aussie property crash theory; but what with the banks raising rates, APRA releasing some pressure through tighter lending criteria and a general sense of negativity in the media I can't help but think that next year will be more reserved.
     
    KayTea likes this.
  16. AusMover

    AusMover Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    50
    Location:
    Melbourne
    I think "Pre-Approval" doesn't really mean much ..... It is just a way of lender saying "Ya ok, things look fine for you at this moment ... and we could give you a loan for upto x" ....

    However, it is not a guarantee .... At the time when the actual loan approval is needed later, most big lenders will follow a full formal approval process again... and if there are any hiccups there with serviceability or property, the pre-approval would not serve any purpose ...
     
    pugstar205 likes this.
  17. S0805

    S0805 Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    333
    Location:
    VIC
    on the topic of Credit file...if lender declines your application how does that gets recorded in your file. Is it stored under 'Access Requests' or specific section for declines or something....
     
  18. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,973
    Location:
    Sydney
    I don't think declines are recorded, only that you enquired.
     
  19. S0805

    S0805 Well-Known Member

    Joined:
    3rd Jul, 2015
    Posts:
    333
    Location:
    VIC
    That is interesting. Wonder how would the 2nd lender realize that applicant has been rejected by lender 1...when they are assessing
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,973
    Location:
    Sydney
    They don't know - often brokers get questions - what is the outcome to the enquiry on 8Nov15 with Westpac - sort of thing.