Imagine going shopping and having no idea how much cash you have in your wallet, or how much credit is available on your cards. Sound crazy? It’s much the same when you go shopping for a property without first getting yourself qualified for a home loan.
So often we hear purchasers tell us that they have spoken to their bank manager and “they’re good for the finance”.
Those days are long over. Your local branch manager has zero control over your home loan. Finance applications are handled by the credit departments of the various banks and sadly, your manager has no influence at all.
In a volatile economy the banks will often change their lending criteria. That means if you qualified for a certain home loan value last month it may not apply today. Anticipated interest rate increases, political and economic uncertainty, and changing markets mean that banks are more averse to risk.
Doesn’t it make sense to find out what a bank will finance up front? With over 50% of finance applications being declined, or approved but at a lower loan-to-value (LTV) rate (in other words you need a larger cash component), it would make sense to make a little effort now in order to ensure the success of your application later.
If you happen to be self-employed the process is even more onerous and requires you to be well prepared long before you start shopping for a property. Not only do you want to know the value of mortgage bond you qualify for, but also the percentage of the purchase price your bank will fund. Don’t assume you’ll get 100% finance. In most instances you will be required to put down a deposit of between 10-20%. In addition to this, you will need cash for transfer and bond registration costs.
With so many home loan applications being declined in the current market it’s now common for a Deed of Sale to include a clause that allows the seller to continue to market his property while waiting for your bond approval. If he receives another acceptable offer you will then be placed on short notice to obtain your finance or risk being cancelled out.
Finding the home of your dreams is a tough and emotionally challenging process. Why add to the stress by purchasing a property with little or no assurance you will qualify for the finance? With very little effort you could speak to a bond originator who will arrange for a pre-qualification.
Don’t forget to find out what loan-to-value (LTV) you are likely to obtain. Budget accordingly and ensure you have the cash on hand you will need for your deposit and costs.
When you’re armed with a pre-qualification your offer on a property will carry significantly more weight – and may even help your offer succeed over another unqualified buyer. So remove the risk of losing your dream home by knowing up front what finance you will obtain. Happy shopping.