Why you should secure finance pre-approval before looking for property

Everyone has heard the old saying “timing is everything”, and in the context of property investment the adage tends to ring resoundingly true. In the competitive world of real estate it is often the case that attractive purchase opportunities pop up unexpectedly, requiring purchasers to take quick and decisive actions to secure properties. 

However, having been in the mortgage industry for over 12 years, I have been privy to many situations where purchasers have lost out on dream properties after being beaten to the punch by better-prepared buyers.

In light of this, it is important for investors to plan ahead as much as possible to ensure that they are able to take advantage of chance investments as they arise. 

One way to do this is to obtain pre-approval for finance from a lender – something that not only enables purchasers to act quickly once opportunities have been identified, but also helps them to ascertain their borrowing capabilities early on in the search process. 

In addition to enabling an investor to narrow the property search within a purchase budget, loan pre-approval could also provide increased price bargaining power with vendors, who might be willing to accept a lower price than was advertised with the knowledge that the transaction is already backed by secure finance – particularly in cases where a vendor is looking for a quick and hassle-free sale. 

The amount an applicant can borrow will vary from lender to lender and will depend on a number of different factors, including a borrower’s income, credit history, existing assets, debt and equity, as well as the property type and any rental income/s that are expected from it. 

Applicants will need to produce a variety of original documents, which should be gathered in advance to save time. These include, but are not limited to, identification documentation, pay slips, group certificates, bank statements, loan details, and insurance and superannuation policies. 

In regards to experienced investors: many often believe that because they have gained finance approval in the past that they will automatically be granted the same in the future. It is important to note, however, that this assumption is incorrect, as the lending criteria of banks changes constantly, meaning that investors can cease to qualify for loans despite their situations remaining unchanged. 

In many cases loan pre-approval will reveal that an investor has greater access to finance than initially thought. And by defining this range with a mortgage broker from the outset, interested buyers can considerably boost their position within the marketplace, improving their ability to act swiftly and secure attractive property investments as they arise. Leverage yourself in negotiations by being ready to fire.

Harry Bozin is a director at Century 21 Home Loans WA