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Mortgage preapproval necessary?

Discussion in 'Property Finance' started by oasis, 23rd Nov, 2015.

  1. oasis

    oasis Member

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    I've read mixed views on whether mortgage preapproval is necessary. Should one bother with obtaining mortgage preapproval? I've used the online bank calculators and spoken to (one) broker and based on these, have an idea of the amount I can borrow.
     
    Taku Ekanayake likes this.
  2. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Usually not.

    I generally only arrange them if there's something marginal with the application, the LVR is quite high and/or the applicant is heading to auction.

    Cheers

    Jamie
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I agree with Jamie, if you're heading to auction they're a must. Otherwise, I find I do them mostly for first home buyers who appreciate the confidence it can give for their first purchase.
     
  4. tobe

    tobe Well-Known Member

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    I always do them, but then I do a lot of fhb high LVR stuff.
    I wouldn't trust online calculators though, they are just a sales tool.
     
  5. Redom

    Redom Mortgage Broker Business Member

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    Depends on your situation. If you're a repeat investor and your broker/banker is confident, you should be sweet.

    FHB usually want them. First time investors often too.

    Also may partly depend on your lender too - if you need someone for servicing and don't have many fallback options, could be worth having it there too.

    May also be market dependent (auction city or not), often now investors purchasing up North need to waive finance clauses and purchase at auction terms, so i'm doing more and more of them of late.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    In the "mass market" pre approvals exist for one "real" reason, and a fluffy sometimes real reason

    The assumption and expectation that this will prevent the borrower from shopping and bond the deal to the banker/broker that provided the pre approval.

    In rare cases, clients do need the comfort because the broker/banker hasnt got sufficient posture to make them comfortable without the piece of paper.

    I have seen people made into "poor quality " borrowers by an excess of such process.

    ta

    rolf
     
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  7. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    Interesting, care to expand @Rolf Latham ? Is it because multiple pre approvals create credit enquiries or are you talking about client relationships and psychology?
     
  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Largely due to Credit files having dead enquiries

    Clean as a whistle client otherwise, just one excess enquiry on a medium scored file can make it "high risk"

    I find it scary that ASIC focus so much on comms abd bank fees disclosure, but provide ZIP ZIP ZIP guidance around who a borrower can be affected this way.

    Our industry has a lot of learning to do still.

    ta
    rolf
     
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  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    So far every broker has responded saying a pre-approval only tends to be useful when it's a tight deal. The reasons given are all quite valid but here's what's not being said...

    Only about 40% of pre-approvals result in an actual purchase (by my records last year). Most expire. It also costs brokers roughly $900 - $1500 to get a loan approved. Getting a pre-approval is 90% of the work of a full approval.

    Ask yourself if you'd spend $1000 knowing that there's a 60% chance you'd never get paid, and if it is the other 40%, you also know that it's an easy deal and there's no real risk to the customer. In real terms unexecuted pre-approvals cost us about $15,000 last year.

    Despite this, most brokers are generally happy to set up pre-approvals, there's a lot of good business reasons why we do this and it does give people piece of mind when they make offers, especially on the tight deals. We've submitted 4 pre-approvals in the last fortnight.

    For the last year or so I've been mulling about charging a fee for pre-approvals, say $500. The the client then purchases a property, we'd refund 110% at settlement. The intent isn't really to cover costs (I'd even be happy to forward the funds to a charity), but instead to give people an incentive to actually do something with the pre-approval.

    I'd be interested to get feedback on this idea. I've put a poll up about it.
    Would you be willing to pay a (refundable) fee for a finance pre-approval?
     
    BuyersAgent likes this.
  10. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    Thanks for the learning @Rolf Latham and @Peter_Tersteeg - I have had a client who got hit by the multiple dead enquiry issue it is a bit scary. Also the cost to broker of an unused pre approval is so good I have never known what the actual cost is to you guys. I would personally support a costed model, but I am not sure if the average punter will agree, they seem to have been lulled into thinking loans are free for a long time.