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Should I obtain pre-approval for my property investment loan?

In our experience, it’s clear that the more work investors do in terms of property selection and finance structuring prior to venturing into the marketplace, the less likely they are to encounter any issues during the subsequent purchase and settlement of their chosen asset.

When it comes to being prepared, one of a property investor’s best tools is loan pre-approval, which can significantly minimise any potential problems that may arise when you think you have found the perfect property.

Although pre-approval does not mean you have an unconditional loan authorised by your lender, it does come with numerous benefits that can translate to a more successful property search and transaction.

The benefits of a pre-approval include:

  • Identifying any issues with regard to your loan structure upfront. For instance, will your chosen lender approve an 80% LVR in the area you wish to purchase in or do they have any concerns about your serviceability?
  • It makes you a more qualified purchaser. Knowing you have already arranged finance is obviously favourable in the eyes of vendors and real estate agents and can ultimately give you a little extra bargaining power.
  • It would be highly unadvisable to ever bid at auction without first obtaining pre-approval, because at the fall of the hammer you are legally obligated to proceed with the transaction, so it’s a must if you intend to win a property at auction.
  • You can shop around and make offers on any property that suits your selection criteria with confidence.
  • It doesn’t take long to establish. All you need to do is provide instructions to your mortgage broker with a few documents for submission.
  • Saves you hassles down the track. With a pre-approval the lender normally only requires a Contract of Sale and rental proof to provide unconditional loan approval, rather than having to assess the loan from scratch. This may also allow the lender to meet quicker settlement terms (which is another negotiating tool).
  • They are generally valid for a period of 3 to 12 months.
  • Ultimately, there is no obligation to accept the loan or even go with the lender that provides pre-approval, particularly if they change your intended product before you find a property.

One final word of warning…just because you think the property you locate represents a “good deal” doesn’t mean the lender will necessarily share your enthusiasm. Assuming finance “will not be a problem” is a risky move indeed. Be prepared upfront.

Are you getting the best possible deal out of your current mortgage or property loan portfolio? Perhaps you should consider contacting us for a no obligation chat about your circumstances and how we can assist you in identifying the best possible loan product for your personal circumstances and objectives.

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Stuart Wemyss is a chartered accountant and founder of Property Tycoon Finance. Email: wealth@propertytycoonfinance.com.au

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