Do I need to have pre-approval before making an offer?

Loan approvals are funny things; everyone thinks they have them until the bank tells them they’re just one check, form away before they can ‘finalise’ everything.

Pre-approval does give you some confidence, and is well worth it if its your first property purchase or if you are unsure whether you qualify. In simple terms, getting a pre-approval will tell you (based on the information you tell the bank and on the assumption that you can actually prove what you are saying) what the bank will lend you.

So if the bank says you are pre-approved for a loan of $400,000, then you need to keep a couple of things in mind:

• What percentage the bank will lend based on the value of the property. If the property is worth $400,000 they won’t lend you all that. They will probably only lend you 80% or $320,000, so don’t get carried away.
• Secondly, everything has to stack up – including you. The banks will check your credit cards, your property’s value using a valuer.
• Do you need it to buy a property or make an offer? You need to know you can afford the property and that means if you are borrowing that you will get the bank to lend that amount to you. A good mortgage broker is probably a better asset if you are buying. We’ve seen a lot of buyers who have been stuffed around by banks on small technicalities, of which a broker would have easily fixed.