If you have been pre-approved for a home loan online within an hour or two, the loan has not been reviewed by a human credit assessor and is therefore NOT real.
Not all loan pre-approvals are created equal
I have had 2 clients in the past 3 months that were “pre-approved” for a home loan (using a bank directly) only to find out after they had purchased, that the pre-approval wasn’t worth the paper it was written on.
Some lenders do “system pre-approvals”. That is, the pre-approval is generated by computer system software, where the application isn’t reviewed by a human until after you buy a property and supply a contract of sale for that property. There have been instances where people have gone to auction thinking that their system pre-approval was the real deal, when in actual fact it was really just an indication that they were likely to get pre-approved once they had been fully assessed by a human credit assessor.
If you go to auction you need to have a REAL pre-approval. Auction purchases are unconditional; there are no finance clauses. That is, if you bid and are successful, you must settle on the property or else you could stand to lose 10% of the property purchase price plus all other costs to the vendor. This could literally cost you hundreds of thousands of dollars.
REAL pre-approval is a good thing
It is imperative that you have a REAL pre-approval. Typically, this means providing payslips, PAYG summaries, bank statements for all bank accounts including credit cards, car loans and personal loans, signing a bunch of paperwork, then waiting 2-5 days before the pre-approval is issued. During the 5 days that your pre-approval (application) is being assessed, there may also be some back and forth with the credit assessor, and more documentation may be asked for.
This is a GOOD thing! It means that all of the questions around your application are being asked and answered now, prior to you making offers or going to auction. If you buy a property, not at an auction, you typically have around 2 weeks to exchange (where the contract becomes unconditional), so having a real pre-approval in place means that the time between you making an offer and being able to exchange will generally be less, because all the questions that the credit assessor has asked, have already been answered. Now that you are in the driver’s seat, you can negotiate harder with the real estate agent and make yourself look more attractive to the vendor, for example, offering a 5-day exchange instead of 10.
There’s nothing worse than making an offer and not being able to exchange in the normal time frame. The vendor is nervous that your finance could fall over and the real estate agent is keen to see you exchange quickly so s/he can lock in the sale (and put a nervous vendor at ease). Having lawyers and real estate agents chasing you for updates on finance approval and an exchange date is not conducive to a stress-free buying experience.
Red flags that your pre-approved loan is fake news
In most circumstances, if you have been pre-approved for a loan within an hour or two of your application being submitted, the loan has NOT been reviewed by a human credit assessor… because lets face it, bank turn around times are just not that great.
You also want to SEE the pre-approval letter from the bank (ask for it) so that you have tangible evidence of your pre-approved loan. It should say something like “Conditionally Approved, subject to a satisfactory valuation of the new property”. There may be one or two other minor conditions listed.
If you get a pre-approval with – You’re approved, subject to “verification of the information provided in your application” – then you may want to ask the question, “Has this been reviewed by a human?” If not, all the questions that need answering will likely come out of the woodwork after you have made an offer or worse still, after you’re successful at auction.
Conditional approval versus unconditional approval
A pre-approval for a loan is a Conditional Approval. It is NOT an Unconditional Approval. There will always be risks when you bid at auction (unless you’re a cash buyer!), however, having a human credit assessor review your application and supporting documents prior to you bidding or making an offer will mitigate around 97% of the risk. To compare – a computer generated pre-approval may only mitigate about 40-50% of the risk.
So, be careful when you choose to use a robot broker. They have been built without human emotion and don’t care about your unique situation. We on the other hand are the real deal and will get you the real deal so give us a call anytime on +61 2 6188 4555. We are here to help.