Pre-approved and Pre-Qualified Home Loan Applications

Buying an immovable property is largely dependent on the financial reserves available for the purchase (affordability), just like acquiring any other asset. Whilst cash purchases are straight forward and quick, purchases through home finance may experience twists and turns owing to various reasons.

It is quite an involved process from application to final approval of the home loan, but certainly it is a process in which parties are in a position to lessen the hassles and not cause delays.

Home Loan Pre-Approval

Unlike a common trend where this is done when the purchaser has already found a property that he/she wants to purchase, it is a wise move to actually start with this process so that when one descends into the property market they already know the property range to put under the radar. It certainly is disappointing to salivate on a property only for the finance house to inform you that as per their initial checks the property is way beyond what they are prepared to loan you. Pushed by the burning desire to acquire the desired property, most people in this scenario would then pursue other means to secure the remainder of the amount thereby slowly slipping into overindebtness.

Pre-approval therefore gives a prospective Purchaser a precise idea of what the finance house may be prepared to offer as home loan, subject to further extensive checks until final approval. Of course arriving at the final approval will also involve further checks and the bank evaluating the property.

Purchasers who initiate this process earlier benefit immensely from the fact that it speeds up the property buying process because one way or the other it will still be done for Purchasers that have not done so. Approaching a Seller or Estate Agent with a Pre-Approval letter also has a further advantage in that the purchaser will be taken seriously because there is partial guarantee that they will afford the property as there is assurance of funds.

So what speeds down the process, you ask?

Pre-approval is based on the face value information that the purchaser has furnished to the finance house. Approval itself will happen after the finance house conducts extensive assessment on the financial status of the Purchaser at that time e.g credit profile, income and expenditure.

In the event that a major aspect has changed after the pre-approval but before final approval or even before transfer, the finance house may conduct a new assessment in consideration of the new changed circumstances. For example, if the Purchaser changes employment in-between the pre-approval and final approval stages, the finance house will need to do a new assessment to check if the purchaser will still be able to afford the loan under the new employment. In the same vein, where a purchaser applies for and takes new credit soon after pre-approval, the finance house may need to undertake a new assessment incorporating the new credit obligations of the purchaser. Having conducted a new assessment the probabilities are diverse, the finance house may even come to the conclusion that the purchaser will not afford the loan and decline, or are still willing to advance the loan but with stricter terms and increased interest rates.

Getting more credit may result also in the purchaser not being able to afford a deposit on the credit facility, thereby crippling their chances and prospects.

Phoenix Group - Bond Originators South Africa

Our advice as Phoenix Bonds is that a Purchaser needs to be careful not to get new credit or change employment especially between pre-approval until the property is transferred. In the whole we encourage financial discipline even after transfer, as this will have a substantial impact in the Purchaser’s ability towards monthly repayment obligations. We specialise in bond origination to secure the best deals on your home loan, as well as bridge financing.

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