Finalising your purchase after mortgage pre-approval

When you’re looking at homes to buy, it’s common to worry about whether the amount you need to borrow will be approved. Getting a pre-approval takes away some of this anxiety and enables you to select a property with the confidence that you will most likely be able to access the funds. A pre-approval mortgage is also called conditional approval or approval in principle.

A mortgage pre-approval indicates how much the lender is willing to give you, based on your financial situation. When you apply for a pre-approval, the bank or lender will check your income, expenses, and whether you have any other loans to assess your repayment capacity. They will also evaluate your creditworthiness by running a check through a credit bureau. You may be called for an informal interview with the pre-approval lender. 

A pre-approval is always subject to the condition that the property you select will meet the lender’s criteria. When you enter negotiations for the homes you shortlist, your mortgage pre-approval increases your credibility with the sellers and your own confidence. You can narrow your searches to houses that fit within your budget. 

Your lender will give you your mortgage pre-approval document, listing conditions for the final loan approval. Ideally, you should not have to bear any cost to get pre-approved for a mortgage, as lenders’ fees are typically charged at the time of the final loan.

I have been pre-approved for a mortgage; now what?

Typically, pre-approvals are valid for about three months. Once you get the sign off, it’s time to start looking for the home you want to buy. If you haven’t been able to decide on a property before your pre-approval runs out, you can re-apply for pre-approval.   

Once you decide on the property, you can still check for home loans from lenders other than the one that gave you the pre-approval. This may help you get a better interest rate and features. 

Now you can apply for your home loan by providing the lender with all the documents needed. Once you get final approval and your offer is accepted, you can schedule the settlement date so that your title on your new home is final. 

Can my mortgage be declined after pre-approval?

You cannot assume that a pre-approval means that your home loan application will get final approval. There are situations in which your mortgage application could be declined after a pre-approval. This includes if the lender doesn’t believe the property is worth what you intend to pay for it. 

There are a few other reasons you may have to deal with a declined mortgage after pre-approval. If there has been any change in your employment status or a drop in your income, it may hamper your final loan approval. If your credit score has reduced, possibly due to a default in credit card or utility bills, your final mortgage application may be rejected. If you plan to borrow more than 80 per cent of the property’s value, then your lender will typically insist on Lender’s Mortgage Insurance, and your application will need to be approved by the insurance provider. 

In rare cases, the lender may change policies and decline your final loan application in case of any mismatch. 

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