Buying a house is likely to be one of, if not the largest financial decision you ever make. If you are considering entering the market for a house and land package, it pays to ensure your finances are all in order.
A pre-approval is a tried and tested way of knowing your borrowing capabilities and better assessing your purchasing options.
What you do not want is to have your heart set on a house and land package without realising it is outside your means, The Loan Company General Manager Simon Kahl said.
“Before you go down that path, you want to make sure you completely understand exactly what you’re getting into,” he said.
“You need to do your research because there’s such a vast array of home loan products available, each with their own set of interest rates, terms, conditions and application criteria.”
While a pre-approval does not guarantee a formal approval, it gives a fairly good indication, Mr Kahl said.
“Once you’re pre-approved, it is quite likely you’re going to be formally approved,” he said. “From the bank’s perspective, you’ve met policy and you’ve met the serviceability requirements, so they’re happy to give you credit unless there are unknown circumstances.
“With comprehensive credit reporting these days, everyone’s credit file has a wide range of data with a history of credit cards, personal loans and home loans. So, from the very start of the process, banks have a pretty good understanding as to someone’s position.”
Mr Kahl recommended obtaining a letter of eligibility as the first port of call and said most developers would expect this to be provided before they would allow sign-off on a block of land.
“There’s definitely a level of scrutiny that is placed upon someone buying a house and land package before they come into the system,” he said.
“You’ll need to have a credit check done, provide some payslips and some basic financial information. It’s a bit of a bird’s eye view that, for example, you don’t have any defaults, you’ve got a full-time job and you’ve got some savings.”
When applying for pre-approval, consumers need to be careful they are not overextending, Mr Kahl said. Too many applications to different lenders within a short window can reflect badly on your credit report, which is why a letter of eligibility is so important.
“It’s not necessarily about getting pre-approved first, it’s finding out if you’re eligible to borrow money first, then finding out what you need to do to get into that position,” he said.
According to Mr Kahl, what matters is choosing a reputable mortgage broking firm which does its due diligence to ensure you are provided with the best possible options.
“The requirements around what you need to do to apply for finance are significant, and we are within a very heavily legislated industry as a result of the Royal Commission,” he said.
“Last year, The Loan Company actually spent more than six months with 60 per cent of our clients, prepping them just to be able to lodge for a pre-approval.
“When you see a broker, they’re going to go out and find the best rate and put you in the best position to apply for finance.”
CONTACT The Loan Co, 1800 880 848, www.theloanco.com.au