It is safe to say that the global financial crisis is behind us and with investor confidence on the rise; there is no doubt that the property market is becoming very buoyant. Both houses and apartments are being snapped up at a speedy rate so it’s important that when you find ‘the one’, you are financially prepared to be able to make an offer with the confidence that your borrowing power can support your bid.
A general understanding of your borrowing power is an important factor in ensuring not only that you have the ability to pay off a loan but in determining your maximum spending opportunity. Tools such as ‘Borrowing Power’ calculator available on the Resi website and comparison websites such Infochoice can provide a useful indication of how much you could borrow based on your salary and some basic financial commitments.
Having a basic insight into your borrowing power is a great initial step to take in deciding whether now is the right time for you to purchase.
If you decide that it is a good time for you to purchase, pre-approving your loan becomes a great benchmark on which to build your purchasing budget upon. Simply put, pre-approval is where you submit a loan application before you purchase a property to gain an understanding of your borrowing power and the conditions that apply to your home loan application.
It also indicates how much deposit you will require and depending on your deposit, what purchase price of a property you can comfortably start looking for. Real estate agents are also more confident in accepting offers from home buyers with pre-approved loans since it decreases the chance of the buyer falling out from meeting their offer.
There are different levels of pre-approved loans. A more in depth pre-approval gives you time, security and confidence to find the best suited property for your financial situation instead of rushing into something that you may in fact not be able to afford. As an example, Resi Home Loans pre-approval period lasts 3 months, giving you ample time to explore what is available in the market all while being prepared. Furthermore, when you find the right property, you don’t have to go through that long and administrative approval process again which can more often than not, increase the risk of loosing your offer to another bidder who is able to finance their offer faster than you.
On the other hand, there are many lenders who offer a quick online or two minute turn around pre-approvals. This type is less secure since it does not consider your complete financial records when providing you with an estimate of your borrowing power.
Nonetheless, circumstances can change from the borrower’s side in terms of financial position and employment; as well as the funder’s side with their lending requirements. So it is important to think of pre-approval not as a guarantee but rather a guide since there are many conditions that will need to be met before a home loan provider will formally approve your loan.
Tags: affordability, Budget, First Home Buyers, Home Loan, Home Loans, Invest, Lender, Variable loan, variable rate