Pre-approval

If pre-approval is granted and I bought a property within 3 months, do I need to submit the latest new documents for formal approval or the previously submitted documents still can be used? Will the bank ask for the latest rental statements and bank statements?

 

If you have a pre approval, and you use it within the expiry which is normally 90 days or whatever they offer, then most of the docs are done.

but

they can ask you for anything at any time.

it is not over till the fat lady sings, as they say

 

Thanks for the advice

 

I have heard some selling agents say some frightening things to novice buyers lately... encouraging them to put in offers without a finance clause by telling them that they don't need it "because they have a preapproval" which is supposedly "the same as formal approval". You wouldn't want to be that selling agent if the buyer did just that, and then couldn't get finance. Conditional approval is not formal approval and never will be.

 

Yes I know.

 

I can show you a couple of applications where the pre-approval was as solid as it gets, but in the end the finance was declined because the lender didn't like the property that was purchased. Mayhem ensues.

The purpose of a pre-approval should be to answer certain questions, primarily can you get the finance based on your financial position. The borrower still has to find a property that is acceptable to the lender and they have to pay market value or below for it. These questions can't be answered until the purchase contract is negotiated.

 

I think of pre-approval as a way to get some basic paper work out of the way with, which can help with more complex portfolios. This way you can save a few days for applications that are likely going to burn a ton of time and save you having to ask for extensions. That's it. It is no guarantee of anything. It's just a time saving measure IMO.

 

So how does that work at an auction where the contract is unconditional?

 

You hope it all stacks up an not paid too much, cause all you have is an approximate loan amount in principle.

 

At an auction you're taking a risk that the bank doesn't find the valuation acceptable and they refuse to fund the loan. Other than doing your due diligence on the market and the property, there's not much you can do about this.

I reckon I've originated over a thousand loans where the purchase was made at auction. I've only had 3 situations where there was a problem with the valuation and in each of those, there was something very unusual about the property in the first place. Two were potential development sites, the other was purchased live on reality TV. In each case we were able to finance the purchase by going to a different lender (who used a different valuer).

The valuation related risk at auction is negligible for most properties, but for unusual properties as described, it can be quite high.

 

Hi all, just reading this thread and wanting to ask what will happen if I can’t still find a house after the pre-approval valid date (3 months), if I go with the same bank who has issued the pre approval, will they do a credit score check again?

What if it takes me more than 6 months to find a place, does it mean the longer my house hunting the more negative impact I will have in my credit rating? Thx

 

These days many lenders will ask for another payslip and some other documents after as little as 3-6 weeks. After 3 (or sometimes 6) months, they'll want an new application from scratch. There's actually laws around this, the variation from one lender to another is their interpretation of those laws.

In many cases, the pre-approval already answered the questions that might have been out there. In this case a new pre-approval may not be necessary. It just creates work and adds extra credit enquiries, not really great for anyone.

If some parameters change, a new job, change in the nature of the income, or a significantly higher purchase price, lender policy changes, it might be worth getting another pre-approval.

Loan applications can be a lot more complicated than people appreciate. Sometimes they're quite simple. I see a pre-approval as an opportunity to answer questions in the grey areas and establish parameters. If nothing has changed, there isn't a lot of benefit to another pre-approval. If fact often the first one isn't necessary either.

To establish where the line is, you need to be dealing within someone who is willing to discuss this with you and make an educated recommendation. Honestly many in the industry see a pre-approval as a sales technique to take the borrower away from the rest of the market. I see it as an opportunity to understand where the lines can be drawn.

 

Just look for your place, but do not buy at auction or without a finance clause or cooling off if your unable to make up any short fall.

In other words, it also would be foolish to rush to buy within the pre approval time.....lenders can still throw a spanner in the works even then.

Have a good solicitor help you.

 

I’ve read the other posters in different thread. I’ve done the salary checking, credit check, assets declaration etc to get the pre-approval. Is it a different pre-approval than the one automatically generated by the bank? The bank said the letter valid for 3 months. If I need extended time to find the property, will it be better if I go with the same lender? Will they check my credit score again? My thinking is if I go with different lender, they will definitely check my score again and I get more hits in my credit rating. Thx

 

Hi @dabbler did you mean not buying for the sake of matching the pre-approval time limit? I thought we need to get pre-approval first before making an offer, unless paying with cash? Thx

Let say I win at an auction, what are the possible deal breakers for the bank to not grant me the loan?

 

It's quite possible that a bank would not lend even after a pre-approval.

Happened to me. Thankfully I had a finance clause. I had pre-approval and when my offer was accepted it was 100k lower than my pre-approval limit and my pre-approval was still valid.