Are you in the buying zone?
One big mistake many investors and home buyers make is looking at deals and properties before they are finance ready.
Because if you want to buy a property and you’re not really sure how much you can spend, it’s difficult to know where to look. The best place to start is genuinely thinking through your goals and running an assets and liabilities worksheet. This means you can then get your financier to run your borrowing capacity.
Window shopping is fine, but if you want to make a purchase, you’ve got to be in the buying zone. And if you’re switched-on Defence Force Property Investor in the buying zone, it’s so much better to be pre-approved.
Let us help you take that next step towards your goal.
On the go? Here’s 30 seconds of take outs:
- It’s essential to know your budget when you’re looking at property.
- Pre-approval puts you in the best position possible to secure a great deal.
- Obtaining pre-approval is not hard, costs nothing and might end up saving you money.
- Capital Properties can help you create a strategy for successful property investment.
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Here’s why you need pre-approval?
- If you’re a buyer trying to put forward offers and negotiating price, you don’t have much leverage without pre-approval. And nobody wants to negotiate from a weaker position. Imagine for a minute that you’re the vendor (i.e. the seller of the house). What would you look for if someone makes a discounted offer on the advertised price for your property? Would you be more likely to accept the offer from a buyer who has pre-approval on finance, a fully signed contract, favourable settlement terms and offers an unconditional contract? Or a buyer who has offered the advertised price but isn’t finance ready? The answer’s obvious!
- Even if you’re a lucky enough buyer to have a good offer accepted, being disorganised can still cost you. We’ve seen many people rush to put an application together and make fundamental errors that result in the finance being delayed. In the meantime, someone who’s finance ready can make a better offer (we call this being gazumped). If this happens and the buyer with the better offer succeeds in acquiring the property, you’ll have missed out on a great deal.
- Not being clear about what you can afford is risky. It’s like shooting in the dark and trying to hit a target. Knowing your budget allows you to act with confidence. Talking to a finance broker and getting your pre-approval in place gives you a clear picture on what you can afford. That means you can make well-informed purchase decisions because you know exactly what your budget is.
- A simple but powerful statement: ‘The reality is that without the correct finance in place, or without finance at all, the property dream will remain just a dream’ – Andrew Winter.
- Being finance ready opens the door of opportunity. Think about it, an investor or property buyer could be the solution for someone in a tricky position. Maybe a seller wanting to exit a situation they found themselves in and who needs to move fast. In this situation, speed is key. The quicker a buyer can move, the more likely the seller would consider offers lower than asking price.
How to get pre-approval?
It’s not hard when you know how! It can be time consuming to get the relevant documents together, but it doesn’t cost anything, so there’s no reason not to.
Here’s what you’ll need to do:
- Complete a finance application.
- Provide supporting documents and;
- the lender will process your application. All going well you’ll be issued with a pre-approval letter within a couple of weeks (sometimes faster).
- Pre-approvals typically last 3 – 6 months.
Is there a catch?
Not really! Obtaining a pre-approval really doesn’t have any downsides. The only exception being if you proceed to get a bunch of pre-approvals with different lenders in a short time frame. Just remember that every time you do a finance application the bank will make a credit inquiry which then shows up on your credit history. This could give the wrong impression that you’re financially unstable, so it’s not a good practice.
If I have pre-approval is the finance a given?
No. Sorry. And here’s why:
Between receiving the pre-approval and formal approval there are a few more steps.
Once a property is chosen the bank will order a Property Valuation.* If there’s a difference between the purchase price and the valuation (for example, if the valuation comes in lower than the purchase price) the buyer will need to cover the difference.
If Lenders Mortgage Insurance (LMI)** is payable the application will be checked by the insurer before finally being checked again by the credit assessor.
*Valuation is a report produced by a qualified Valuer to determine the value of a specific property that day of the report. The valuation report is typically valid for 3months.
**LMI [Lenders Mortgage Insurance]
Guest Blogger: Brian Beck | Mortgage and Financial Consultant