What your bank doesn’t tell you about your pre-approval?
With all these rate rises we are getting a lot of our pre-approved clients back again and again to review their borrowing capacity…why is this?
Rates have been rising a lot in the last few months and so has the cost of living. These two factors will influence the affordability of your future home loan. When a lender considers what they will lend to you they take into account today’s interest rate PLUS 3%. In other words, if today’s rate is 4% they are making sure you can pay it back at 7%.
Most lenders use their own version of the household expenditure measure or HEM to determine realistic spending levels based on income, family structure, and postcode. As the cost of living has gone up, figures have also gone up. I am noticing big differences here for clients.
So what does a pre-approval mean?
Normally we advise clients that a pre-approval is valid for 3 months. However, with rate rises of 0.5% every month for the last 3 months, this has significantly shifted our involvement with both our pre-approved clients and their lenders. Lenders advise that pre-approval is an indication from a lender that you’re eligible to apply for a home loan up to the amount they advise. The lender is under no obligation to honour when you find a home as the small print allows for a change in circumstance such as rate rises!
Getting pre-approved will help focus on your new home search by giving you a clear idea of what you’re likely to be able to afford. Considering the loan amount, your deposit, gifts or loans from your parents, and the use of various schemes. We will also go back and make sure you are buy-ready when you find your ideal home.
How to make sure?
Contact us