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Home Loan Pre-Approval: An Essential Ingredient

02.07.24 | Marc Barlow | Blog

It’s stressful enough to have to face an auction or make a bid on a house. But it’s even more stressful if you don’t know if a bank or other lender will approve a loan to pay for the property.

That’s why Mortgage Broker Group always recommends buyers get pre-approval from their lender.


Pre-approval explained

A pre-approved loan is exactly what it sounds like … almost.

Prior to purchasing a property, a buyer can approach a lender, such as a bank, and apply for a pre-approved loan. The lender will look at your savings, other debts, employment record and more before deciding how much they’re prepared to lend you.

When you buy, the contract you sign is legally enforceable. If you can’t pay up, you can find yourself in serious trouble. Pre-approval gives buyers confidence when bidding or negotiating a purchase. You know what you can spend. Sort of.



Almost? Sort of? It’s VERY important to understand that pre-approval is not a guarantee. Pre-approval does not actually mean that your lender will always approve a loan for that amount of money!



Determining the property value

Pre-approval always needs the lender to approve the total amount of money you plan to spend. When you buy a property (and sign the contract), the lender then values the property independently.

If you spend $800,000 on a property but your lender values the place at $600,000, then that’s all they’ll lend you. That becomes a $200,000 problem for you to solve. Ouch!

So while a bank might happily lend you $800,000 based on your financial situation, they won’t lend more than whatever they think the property is worth.

This is especially important in a private sale, where negotiations and deals happen behind closed doors. Because auctions are public, lenders mostly accept that the result is the true market value of the property.

While it’s rare for a pre-approved loan to be refused, it is important to understand the market, recent comparable sales, and the general state of the housing market. We can help.

You can get assistance from our brokers in understanding a property’s current market value. Since lenders generally use the same sales and market data that we do, things should work out – as long as you don’t make an outrageous offer.


Talk to us

Buying with preapproval carries very little risk. However, it’s crucial to realise that a pre-approval does not mean you can spend as much as you want.

Mortgage Broker Group conducts market studies on houses of interest to help you work out how much you can afford. We’ll find a loan that suits your individual circumstances, and even help with the paperwork.

Reach out to us before you buy.