Pre-approval can either be your best bud or your worst nemesis.
To avoid getting caught out by any further changes to bank lending policy, an increasing number of house hunters seeks out pre-approval for their home or investment loans early. A pre-approval doesn’t always mean a guaranteed loan offer though since there are a number of nuances in pre-approval that could block a loan. So, it’s important for homebuyers and property investors to know where you stand.
Here are some things that you have to watch out for.
1. Pre-Approvals That Are Subject To Credit Checks
Pre-approvals that are subject to credit checks or lender’s mortgage insurance leave you the most exposed. This is because the lender hasn’t done the critical checks to determine the risk of providing you with the loan.
2. The Loan Is Subject To A Satisfactory Valuation
Probably the most common condition investors will come across is that the loan is subject to a satisfactory valuation of the property. However, the use of the term “satisfactory” may mean various things to different lenders. It can mean ensuring the property isn’t a services apartment, or that it’s located in the right residential zone and isn’t zoned mixed use.
So, ensure that you understand what your lender is looking for when they use the term, particularly if the property you’re eyeing has unique characteristics.
3. Market Rate For The Property
The amount you’ve paid for the property will need to pile up as opposed to recent comparable sales. This is particular for rural areas as lenders want confidence they can sell a property quickly if there’s a need to. Some lender won’t lend if the market is slow or weak, or if you’ve paid more than the market rate for the property.
4. Risk Of Over Exposure
Find out if there’s any risk of overexposure in the area you’re looking in. Some lenders may limit the number of loans they will provide for properties in a particular area.
5. Property Type
The property you want to purchase will have to reflect the property stated in the pre-approval. So, don’t bit on a commercial property if you’re pre-approved for a residential home. The type of property you want to buy can also affect the size of the deposit you need to acquire.
Many lenders require a different loan-to-value ratio for different property types. So, make sure you specify if you’re buying an apartment, warehouse conversion, free-standing dwelling or a commercial property.