Step 3: Getting Your Loan Pre-Approved

The vast majority of house purchases are financed by a loan. The only exceptions are if you have plenty of cash readily available or you’re trading down to a cheaper property and can pay with the proceeds from your current home.

The Need for Pre-Approval

If you are looking to buy some real estate, it’s advisable to get your finance sorted out in advance. That way, you know what you can afford to buy and you won’t be putting in bids that turn out to be a waste of time because you can’t raise the finance.
Although pre-approval of finance imposes no commitment on a company to actually provide a loan, it does at least indicate that they are likely to offer a certain level of money. They will generally provide a pre-approval letter that sets out how much money they are planning to lend, which at least indicates your potential buying power.
When you do put in a bid for a property, you can show your pre-approval letter to the seller as evidence that you are likely to have the required finance available. This will qualify you as a genuine bidder in the eyes of the sellers. They will have more confidence in you than in someone else who has no evidence of pre-approval and this may tip the balance in favour of your offer.
Another reason to arrange loan pre-approval is that you’re then not having to rush around once you’ve found a property trying to sort out the finance. In some cases, you might have a very limited time to get the finance in place or risk losing the deal. The danger is that you’ll have to take a loan that doesn’t have the lowest interest rate or might require a larger deposit simply because you haven’t got the time to find something better. If you’ve got a pre-approved loan already sorted out, you’ll already have found the best deal and it’s simply a case of confirming what you need and getting the approval confirmed.

Getting a Pre-Approved Loan

There are plenty of organisations that will provide home loans and some of these are featured on this website. Many of them will pre-approve a loan and you can get several pre-approvals so you’ve got plenty of options to choose the best rate and payment terms. However, be aware that each organisation will undertake a credit check and these will all get recorded on your credit report.
You will need to provide details of what you require and your current financial situation. This information will be reviewed together with your credit report and a loan that meets your needs will be suggested. The offer will set out the amount to be advanced, interest rate to be charged and the term of the loan. Armed with your pre-approval letter, you can then set out to find your ideal property.