A pre-approval of finance before shopping for a house is common for many buyers and recommended by many lending experts but applying for a pre-approval could ruin your chances when it comes to making a formal application.
The top 5 reasons why a pre-approval is bad for you:
1. They expire after 90days
After 90days you start from scratch again. A new application form and fresh information on everything you already provided is needed. Even after 30 days, most lenders still require fresh payslips, bank statements etc.
2. It is not a full assessment
Pre-approvals have so many conditions in the fine print, they are practically a worthless piece of paper. With most lenders, payslips are not checked, bank statements are not verified and mortgage insurers are never asked for approval.
3. No protection against policy changes
If a lender changes policies during the 90days, the new policy will be enforced. This happened in 2015 when thousands of investors were caught out by banks increasing minimum deposits for investors. Many lost $1,000’s in deposits and fees because they relied upon a pre-approval.
4. Can ruin credit history’s
Each time a lender does a pre-approval, an enquiry is made on your credit file. If you have multiple pre-approvals even with the same lender this will negatively impact on your credit. This could result in a formal application being declined because the credit file is too ‘busy’.
5. It’s a sneaky sales trick
The industry encourages pre-approvals because it stops buyers shopping around. Buyers can get locked into a bad deal because they can’t go to another lender as their credit file is now too busy and can only go with the lender who issued the original pre-approval.
In some circumstances, a pre-approval can be extremely beneficial and is the best course of action for some applicants however for the most part, speaking with a highly trained and experienced mortgage broker can often give the buyer just as much confidence to make an offer without impacting on credit files or missing out on a really good deal.
