All Topics / Finance / Pre-approved loans – How it works ?

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  • Profile photo of PropertInvestorPropertInvestor
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    @propertinvestor
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    G'Day !

    How does pre-approved loans works. Lets say I am intending to buy IP for 350k and got a pre-approved loan of 95% of 350k, but when start looking and selected a property costing 380k or 310k.

    So, what happens if selected property price is LESS then pre-approved loan amount & what happens if selected property prices is MORE then pre-approved loan amount.

    Note: May be very basic question.
         

    Profile photo of YoungInvestorYoungInvestor
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    If less, you will generally be fine.

    If more, you may need to re-do the approval to make sure you can get the little bit extra.

    Profile photo of PropertInvestorPropertInvestor
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    1. So if less they will give me 95% of 310k (property price) ?

    2. And if more to avoid re-approval stuff, whether it is advisable to get MAX loan. Say you intend to buy IP for 350k, so better to take pre-approved loan for 400k ?

    3. What most of people do they get pre-approved loan or they get loan when they selected the property to buy ?

    Profile photo of WhatIfWeFinanceWhatIfWeFinance
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    @whatifwefinance
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    A couple of points to be aware of:

    1. If you require less than the preapproved amount (ie bought a checaper property) generally the lender will give you 95% of the property purchase – assuming the bank valuation of the property is as per the purchase price
    2. Re point 2 you can get the maximum loan amount – remembering though banks will require you to deomnstrate at least 5% in savings or equity in another property
    3. Varies according to client preferences. Generally fine some clients like the peace of mind knowing that they have been preapproved

    Profile photo of billyblanks29billyblanks29
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     Lenders have varying loan assessment rates. A rate of 7.85% vs. 6.25%, on a salary of $67,000, could mean the difference between getting  a loan approved for $380,000 or $460,000.

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    Profile photo of PLCPLC
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    What you have to remember with pre-approvals is that they are not foolproof, and depending on the situation and lender may be worthless.

    For example, getting a pre-approval online by punching numbers in isn't worth a grain of salt. Neither is going to a lender who only credit score.

    Others whose credit team see the file and do a bit of an assessment are a bit better, but as you find out from the pre-approval letter you are sent, it will be subject to conditions once you find your property meaning unconditional is not guaranteed.

    The other thing is not to go around chasing pre-approvals with multiple lenders, can damage your credit score.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
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    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of ZanshibuiZanshibui
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    At 95% you'll be paying LMI which in reality means the pre-approval isn't worth much. LMI providers are substantially more particular about the details of the person and the asset they are securing than the banks are. Pre-approval in this case should simply be considered a guide.

    Profile photo of Richard TaylorRichard Taylor
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    Zan that is not quite correct.

    With some lenders even at 95% lvr it is a full pre-approval one that the mortgage insurer has signed off on and is only subject to a valuation on the property being purchased and final sign off.

    The CRAA, income and savings verification have all been done.

    Other lenders even at <80% it is a worthless piece of paper.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

    Profile photo of Jamie MooreJamie Moore
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    Like the others have said, there's varying types of preapprovals.

    Some will be online, automated systems that look at the basic parameters of the deal and either say yes or no. These sort of preapprovals are basically an assessment of your borrowing capacity in line with the lenders policy and are pretty worthless. Bankwest springs to mind here.

    On the flipside, there are other lenders that will actually have a credit officer assess the deal and then provide conditional approval subject to the valuation and LMI approval if required. If the deal fits within the lenders delegated underwriting authority with the LMI provider then the vast majority of these deals will be approved (in my experience) – unless there's an issue withe the property being purchased.

    As Richard mentioned, some lenders even take it a step further and get LMI sign off on the preapproval as well. This is as good as it gets in terms of a preapproval.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of ZanshibuiZanshibui
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    Qlds007 wrote:
    Zan that is not quite correct.

    With some lenders even at 95% lvr it is a full pre-approval one that the mortgage insurer has signed off on and is only subject to a valuation on the property being purchased and final sign off.

    The CRAA, income and savings verification have all been done.

    Yes, you are correct. you can count on some pre-approvals less than 80% LVR where full financials have been done providing the property evaluation stands.

    My point was that even if the bank was 150% willing and committed to lending you the money that has nothing to do with the LMI providers willingness and commitment. We all know that things aren't entirely rosey in the market at the moment and the Lmi provider is essentially the one who is making the real call on whether you're going to be able to pay and if the property can be sold to recoup the costs. They are a bookie taking a bet against it and need to work the odds. . They evaluate your loan/property independant of the bank and can in fact require further info/clarification than the bank needs. They are what I would call "skittish" when it comes to 5% deposits in this market.

    LMI evaluation is done as the 2nd last step in the final loan writing process and so it is entirely  possible and common that LMI will reject the loan after the bank has said yes.

    Profile photo of Richard TaylorRichard Taylor
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    Sorry Zan this is not correct AGAIN.

    The question related to a Pre-approval and how much creedance you could put on such a piece of paper.

    There was no mention of the security property which at this stage in the game has not been located.

    With many lenders the mortgage insurance looks at the entire deal on offer fully assesses the credit worthiness of the applicants and signs off on the deal.

    There is no double dipping or changing its mind in regards to the applicant.

    Lenders with DUA don't have to even show the mortgage insurer the deal so if the lender is 100% happy and it satisfies all of its lending criteria the deal wont even get referred.

    Of course the misconception is that if a loan is declined by one mortgage insurer you can go to a lender with DUA who uses the same insurer and slip the deal past them. Hate to say that wont work but there 7 or 8 insurers across the country so if might be a matter of horses for courses.

    Cheers

    Yours in Finance

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me

    100% Investment Finance now available on selected properties. Email us for further information.

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