Following on from last month’s post about moronic home loan pre-approvals, I thought I’d throw a word of caution out about the limitations of a quality mortgage pre-approval. Yes, sorry to say, there are some.

Obviously, a real pre-approval is exceptionally useful because it’s the main way of establishing what the maximum price you can pay for a property is, and your price bracket in general. In turn that helps you decide:

  • Where you can buy (location, location, location)
  • What kind of property you can look at (apartment, unit, house)
  • And it helps you budget because you’ll know what your repayments are likely to be on top of everything else

But if you thought having a pre-approval meant you could roll into an open home and buy it on the spot, slam dunk…well, that’s not quite true.

Finance can still fall over even if you’ve got mortgage pre-approval in hand.

The good news is that IF that happens it’s usually because there’s a problem with the property rather than with you.

You see, pre-approval is mostly about approving you as a borrower. It’s why we ask for your payslips, bank statements, savings history, kiwisaver info etc, etc.

But there’s an all important property to factor in too – you just haven’t found it yet.

When you do find a place it’s natural to want to check it out to make sure you’re not buying a lemon.

And the bank is thinking the same thing, after all they’ve got quite a bit at stake too, remember.

Banks look at a bunch of factors for each property including:

  • The house’s online value
  • The offer price
  • The property type (apartment, unit, house etc)
  • And the method of sale (private sale, auction)

They also look at the sale and purchase agreement for any dodgy conditions.

All this stuff can trigger additional effort from you in the form of things like building inspections or registered valuations.

It’s tempting to push back against these things, but it’s natural for the bank to want to make sure the security you’re offering in exchange for the loan is solid. The house has got to hold up.

Sometimes it seems like their questions are irrelevant and stupid (and at times they are!). But the reality is that if the bank is concerned about the property, then it should raise your eyebrows too.

So here’s my advice for you buyers –
  • Get your pre-approval in writing
  • Read it so that you understand what you can and can’t do
  • Use a broker who can explain it all

In fact you should engage a mortgage broker right from the outset, even if you’ve bought property before. If we understand who you are as a borrower we can pitch you properly to the bank, iron out the wrinkles that inevitably crop up, and deal with any baggage you might have!

Getting ready to take the plunge? Drop me a line sometime and I’ll help you get yourself set.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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