Most people don’t know that pre-approval can be withdrawn, causing more confusion than giving confidence. Pre-approvals aren’t a formal commitment to approve your loan but only an indication. They should be used and are best to ‘trial run’ when property hunting so that there is a price range. The bank has a right to decline your application, even after you’ve done the hard yards and found the perfect property to purchase.
It’s common for people to get a pre-approval from the bank, find the right property and put down a deposit, only to have their approval withdrawn when they request an unconditional approval. In this case there’s no other option but to frantically search for another lender to approve the loan, before they lose their 10% deposit.
So why don’t banks give you reliable pre-approval?
Assessing a loan application is the job of an authorised credit officer, who is generally highly trained and well paid.
Often we are unaware and don’t consider the amount of work involved in pre-approvals. Checks include employment, data verification, credit scoring, fraud, credit and finally a decision.
In 2008 many lenders put a stop on full assessments of pre-approvals, as they found many didn’t convert into a settled loan. Given the amount of work and cost associated they have found it be a good decision. The only problem is it has left people at risk of losing their deposit, if unable to finance.
What if I buy at an auction?
When buying at an auction, it’s especially important to have reliable pre-approval. If possible, make sure your loan has been fully assessed by your lender. Even if you have a pre-approval, there are many other risks associated so it’s advised to notify your solicitor or conveyancer before you start bidding.
Either way, it’s important to request a cooling off period or finance clause (depending on the state you live in). This will give your lender enough time to formally approve your loan, before you commit to buying the property and paying the 10% deposit.
Which lenders do what?
- ANZ: ANZ branches often give on the spot pre-approvals that aren’t reliable as they haven’t been to the credit department for assessment.
- Bank of Melbourne: Bank of Melbourne pre-approvals don’t always go to their credit department and almost never go to their Lenders Mortgage Insurer.
- NAB: NAB’s pre-approvals generally don’t go to their credit department for approval, they are often just an assessment of the customer’s borrowing capacity.
- Westpac: Westpac’s pre-approvals are system generated and don’t go to their credit department.
- Macquarie Bank: Macquarie Bank’s pre-approvals are system generated and don’t go to their credit department.
- Suncorp: Suncorp’s pre-approvals go to a file owner, but not to a credit officer for formal assessment. Their credit department often disagrees with the pre-approval that was issued by the file owner.
- On the spot pre-approvals: All major banks offer on the spot pre-approvals which aren’t reliable. You must request a full assessment from their credit department!
So how do I get a reliable enough pre-approval?
The most reliable pre-approval is one that has gone through a full assessment and loan application. Once complete it is called a full or formal approval. This can be done through the lender or your mortgage broker by providing the following:
- An application form, complete and signed
- Primary identification documents including your passport/ drivers license
- Proof of income. i.e payslips and/or tax returns
- Proof of savings, such as bank statements
- Proof of your current debts, such as existing home loans, car loans and credit cards
Allow up to 5 working days for your application to be assessed by the credit department and remember a more thorough assessment prior to full approval should give a more robust and reliable picture.
For an honest and unbiased opinion, talk to Think and Grow Finance today on 03 8390 5855 or email firstname.lastname@example.org