16 Mar 2023 Podcast: Deep Dive – Do You Need a Pre Approval?
Most people get a pre approval on their loan because they don’t know how much they can borrow, but in this Deep Dive episode Evelyn and Maddie talk about other reasons why it can be so critical to ensure you are fully assessed by a bank BEFORE you buy.
This episode covers:
- What a pre approval is and how the bank assesses this
- The missing puzzle piece in a pre approval to go to formal approval
- Who pre approvals are critical for vs when is it not as necessary
- How long it lasts and whether you can extend your pre approval
- Other added benefits to your pre approval that you may not have considered
- And, what happens if you change jobs during the pre approval period?
Enjoy the chat!
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Podcast Audio Transcript
Before we begin, we would like to acknowledge the traditional owners of the land from which we are recording and you are listening today, we pay our respect to their Elders, past present, and emerging always was and always will be Aboriginal land.
Welcome back to another episode of you.
0:20
Have my interest, I’m Evelyn.
And together with my colleague Maddie, where mortgage brokers here to help you make smart moves with your money by giving you tips tricks and tools to help navigate your wealth Journey.
How you feeling this morning?
Oh, I’m excited.
0:35
I’m nervous.
What day is it today?
It’s our International women’s day charity event, and it’s the biggest one we’ve had.
And I wrote a speech last night, which is the best speech I’ve ever written, because I usually just wing it.
I love just speaking from the heart and this year, I was like, no, I I’m actually going to write what I need to get out and make sure I thank everyone that I need to, so that’s made me nervous actually writing the speech.
0:58
Now, I’ve not used to writing speeches.
You’re very good at winging them, and having them.
The Cuffs a, I’ll be interested to hear it but I’m sure you’ll do great from the heart.
But if I go off script, it’s very highly likely to occur but well yeah anyway I know I did.
So we’re doing this just before about to go rush to the event because we knew he had to get this done.
1:17
So today we’re going to talk about all things pre-approvals.
We’re going to do a bit of a deep dive into what they are, what you need to be aware of how long they last what sort of conditions they come with Etc.
So in terms of how where we start I guess when it comes to pre-approval, why do you get A pre-approval.
1:33
You get a pre-approval because you’re effectively getting a pre-assessment completed on your borrowing capacity and your ability to be eligible for your own loan.
Yep.
That is fully assessed by the bank, which means that by the time that you go to auction or you make an offer on a property, you have the highest chance of that then converting to formal approval knowing that your personal circumstances have already been assessed.
1:57
Now, I say, personal circumstances because the biggest condition associated.
With the pre-approval is number one that your personal circumstances don’t change.
But number two, that you then buy a property that meets the lenders criteria because that’s the missing piece in the puzzle, when you apply only family.
2:13
Exactly.
So, the reason that I think most people get a pre-approval is because they genuinely don’t know how much that they can borrow.
Yes, and that’s the main thing that I think will set a lot of people’s nerves.
If you went out and you were looking at properties and you wanted to buy something and you found the price range, that you really like to say nine hundred thousand to a million dollars and you haven’t got a pre-approval and place, you don’t actually know if you can afford that, you don’t know if any of your little debts or your expenses are going to align with that purchase price.
2:43
So when you go to a broker, you can actually assess exactly how much you can afford, how much of a deposit you’ll be able to put in and it just gives you a lot of clarity on your expectations going in and I think it’s so much better to do before you start looking because you don’t want to upset yourself, right?
Absolutely.
You don’t want to set yourself up for failure, but you also don’t want to get into a situation that you can’t get out of because you haven’t been Thurston, you’re buying something that’s outside of your means or you’re buying something that you just don’t qualify for Full Stop.
3:07
Exactly.
So when we’re looking at pre-approvals, we’re actually submitting an application to the bank that has everything that we would normally submit to them for a full approval.
Except the actual address of the property that you’re purchasing, that means that the bank’s now going to go through, they’re going to assess.
If you look from the very beginning you as a person are you a citizen or are you a permanent residence or you?
3:27
A temporary resident.
For example, those things can actually impact your eligibility for a home loan.
Then we’re going right down to.
Or what’s your income?
What type of income are you receiving?
If so, how is the bank going to assess that and then therefore, what does that translate into borrowing capacity for sure.
Then we look at the obvious, then we look at your liabilities and your expenses.
3:45
And I guess outside of that, just the, the general sort of account conduct credit, check credit checks, all that sort of thing.
So, it is a fully assess process that then we’ll provide you Clarity that for the next 90 days, providing nothing significantly changes in your circumstances.
4:02
It is and I shouldn’t really say significantly.
Because if something changes in your circumstances, that has a very high school has an impact on you, your credit, your pre-approval.
So for the next 90 days that will then be valid, which means they will basically hold their assessment.
If you come back in 89 days with the contract of sale, they can now go to formal approval, without needing to then fully assess your application again, so long as nothing has changed.
4:27
Whereas if you get to the, a 90-day Mark, you can actually roll over the pre-approval for other 90 days.
Hmm.
But that’s going to cause a reassessment at that initial 90-day period.
Then it’s going to hold again up to that final 180-day, Mark.
I think that’s really awesome.
It’s good to know that you can extend your pre-approval if necessary.
4:44
But a big thing I want to touch on and think will be really good to know.
Is that some banks that 90-day pre-approval can’t doesn’t have to be fully assessed.
So, I think it’d be really good to go into and kind of just explain to people.
What’s the difference between a lender that would fully assess?
5:00
Which we already just went through.
What is this system based prevention?
Yeah, like a system-generated yeah that is a really great question and it is something that we need to consider so specifically when we’re putting Banks applications to the bank because basically you’ve got two different channels of pre-approval in a bank.
5:16
So with One bank they will pick that up like any other application and they will assess it like any other application back with a physical credit officer.
A person that picks it up, looks through it just like we do as Brokers which I think the broker assessment is like a Mini check of a pre-approval for sure.
5:34
It’s allowing you to identify, which banks you’re most suited to and it’s allowing you to obviously help out with the understanding of the products in the features and what you really need out of the loan, help you with structuring Etc.
But it’s never going to be assessed before.
It’s picked up by the actual credit assessor.
5:49
And so, you’ve got the fully assess credit stream.
That’s the one that you want to land on because that gives you that 90 days of certainty or you’ve got a system based pre-approval.
Now, the reason the banks do this is because they want to keep their Levels fast and tight.
And if you’re submitting multiple multiple pre-approvals that never come to fruition that takes up resources in the banks.
6:11
So there’s a number of banks that will basically run their pre approval through an algorithm.
Once you submit that application, it picks up all the data fields that have been entered if it hits enough green lights, boom, pre-approval.
Yeah.
It’s just automated.
No automated little.
6:26
Take its run through algorithms, so it literally is assessed within 10 minutes.
It’s exciting that we should really get an email nearly instantly with pre-approval for the clients.
Correct.
Now in some instances, you don’t need a fully assess pre-approval, exactly.
6:44
However, if you are someone with tight borrowing capacity, something a little bit out of the ordinary in your circumstances or you’ve got some variability in your income, if you’re self-employed 100%, get a fully assess pre-approval but also at the rate Rises as well, you don’t know how they’re going to impact.
Exactly.
Right Rises.
6:59
And then the other thing that I would say about that too, is Risk applications to a bank.
So high loan-to-value ratios types of properties sometimes.
And that’s only because if you’re looking to buy in a specific post code, yeah.
Times banks have restrictions on the post high density area, density areas, all that sort of something that’s more that’s harder to determine.
7:20
I guess that’s something that you need to have a conversation with your broker about before you submit the application because they should, then be steering away from those banks in general.
Exactly.
As opposed to waiting, until you’ve signed a contract to find out.
And then the other things that I would look at around the pre-approval process has there may be very small things, you may be a perfect person on paper but when the bank actually goes to look at your bank statements, have you been overdrawn in the last 30 days that may cause a red flag for sure?
7:47
Do you spend a lot on gambling?
There’s a lot of little mini red flags outside of the actual assessment piece that will only be picked up when someone physically eyes that document exactly.
And that really determines on, which type of Bank you want to go to.
So, for instance, Westpac can be system or fully assess but Macquarie is a big one that we love and they do system assess pre-approvals and we definitely don’t steer people away from system-based people’s if they’re in a strong position but and that also really plays into how long you’re going to be waiting, right?
8:21
So a fully assess, pre-approval may take you anywhere from three-ish Days, business days, that is and then it could you.
But you could be waiting for up to three weeks for a bank, to be able to assess it because they do assert like a Any other purchase or refinance?
Whereas, if you are going for a system based, as we said, it can take up to 10 minutes but you’re really not going to be assessed.
8:40
Yeah.
And that’s more.
So you’re just going to be relying on your Brokers strategy and Brokers assessment.
Yeah, to see how you’re going to be going.
So if you’re in a strong position, it’s not necessary.
But if you’re going to auction and you’re not going to be having a subject to finance Clause, it is really necessary to know that you have either a strong borrowing capacity and financial position or you have a pre-approval to back you up yet.
9:00
A lot of real estate agents will You seriously if you don’t have a fully assess pre-approval and can prove it.
So there’s a lot of differing factors and that’s what we go through.
As Brokers to put you in the best position and put your best foot forward.
Best foot forward when you’re going to purchase property.
Yeah, the only thing I would add to that the example that you gave of the Westpac and Macquarie situation, they both on paper will automatically assess.
9:24
So system based assessment, there are instances where by exception.
If the deal warrants are fully assess pre-approval.
We Can have that escalated to obviously.
So I save a fully assess people but it may take a bit longer because it’s still doesn’t tend to go through the regular channel of the bank.
9:39
They tend to put it to the bottom of their cue.
Yeah.
Well, it’s an exception, right?
And then you’ve got the situations where Like we said someone in a very, very strong financial position that has backup options.
That has time, that’s maybe bought subject to finance or is planning on buying subject to finance.
9:57
They could go with someone like a quarry where maybe they’re at a 60% lvr and we know as a worst case if they don’t get approved with macro because there’s something credit-based that isn’t picked up from the initial application, or whatever.
It might be that they’ve got a multitude of other lenders to choose from and I will sort of preface that as well with saying.
10:16
Part of our initial assessment as Brokers also includes a credit check.
We obviously go through those accounts in very fine detail, tooth comb to pick out other potential red flags that here that we need to be aware of and we’ll let the client know if there is.
That may also cause us to swing one way or another when we’re looking at potential lending options as well.
10:34
I’m sure wherever we do a credit.
Check with one blind with one credit reporting body.
There are up to three that a bank can choose from.
Yes.
So clear.
Even in that situation they can defer maybe something slightly different different that we don’t pick up correct.
And there’s always going to be things that sometimes are out of our control, but we do our best to literally go through everything with a fine-tooth comb.
10:54
You prefer us to pick it up in a bank.
Yeah.
Because whenever you go for a pre-approval that is it does get reported on your credit check.
So you don’t want to keep applying for pre-approvals constantly and them just coming up as reports on your on the credit checks as well.
11:10
That’s right.
So let’s talk a little bit about the benefits of the pre-approval so we obviously mentioned that for our clients Absolutely critical to know their maximum borrowing capacity and what their maximum limit is.
And I think even just knowing that number in their head can assist them really when they’re looking at potential properties, and when they’re going to auction, they know crystal clear.
11:28
The maximum number that I can beat up to, for sure, but you alluded to it before and I think it’s a fantastic one that that agents will obviously prefer you if you’ve got a pre-approval as well because they know you’re a serious buyer, exactly.
You’re not just coming in, for the sake of it.
11:43
Actually, having a snoop around and not only that That it gives you more bargaining power because if you then need to go unconditional as part of your negotiation, you have a much stronger chance if you’ve had a fully assess pre-approval and by just winging it assuming that you’ve got a good financial position or you’ve done some sort of research is hell yeah.
12:02
But yes you do have a much stronger chance of also being able to play around with terms.
So what can I go faster settlement time frame because I’m already halfway there.
Exactly you’re going to be Andrew Fastow.
Yeah can I go unconditional or can I bring my finance calls down from 14 days 24 because I’m going with someone that’s only going to take 24 hours to pick up the contract of sale and to do a valuation of a final check.
12:23
Yeah, exactly.
Yeah, I think that’s a really good point end.
It also reminds me of only a couple of months ago, we had a buyer and the real estate agent wanted a copy of their pre-approval and which is very in that it is rare and it’s really strange but it’s still something that real estate agents especially when there’s a lot of people that are interested in the property.
12:43
Yeah.
When that demand is high, I’ve seen it even if you have somebody that That doesn’t have a pre-approval and that does, but you had the exact same Clauses, like 14 days for building and pest Finance, 30-day settlement.
If you’re really strong, they might take someone and most likely.
We want to go with someone that already has a pre-approval because you’re much less likely to have the finance calls Clause fall over.
13:03
Yeah, correct.
I’ve seen Banks, not Banks.
I’ve seen many agents actually take lower valued offers with no conditions exactly over ones that have a finance clause and a potentially longer settlement with that kind of Out from an agency perspective, are you prepared?
13:19
Have you actually got your pre-approval in your Finance sorted?
Or are you just having a go at this prematurely?
And yeah, it’s a bit of a well, you’re much less likely and technically, if you’re an unconditional offer, you’re not going to pull out.
Yeah, Paris into somebody that has a building and pest a clause and a finance laws if anything happens with Finance if they can just easily pull out of the, of the offer.
13:40
That’s it.
Yeah, so that’s I guess a little bit of the benefits of the pre-approval if we look at Okay.
You’ve been pre-approved now for 60 days.
You’ve secured a property.
What happens next?
So, the very, very first thing that happens is you will send us a copy of the contract of sale.
13:57
You’ll send your broker a contract of sale let us know you bought.
Yeah.
Yes.
Actually some people don’t even, they forget that us know.
Yeah.
They’re getting close to the finance close and they very rarely does it happen but yeah.
First of all, tell us that you bought will celebrate with you.
14:12
Yeah.
And then we’ll get going on the finance piece from here.
So what happens is you Respect the contract of sale.
Now, as we said earlier, when your pre-approval has been fully assessed with no outstanding conditions, the remaining condition will be that, that property meets the eligibility criteria as well.
Exactly.
14:27
And so, in order to determine that, they need the contract, and they also need evaluation done on that property.
Yes, I’ll do a little bit of a dive intervals, but will probably save that for another.
Yeah, that’s a whole new other, exactly.
But there are different types of evaluations.
I’ll do.
If you’re purchasing owner-occupied generally, they’ll take either a desktop or a automated valuation.
14:47
However, sometimes if you’re purchasing an investment and it’s interstate from where you live Banks, would like a fully full inspection, which means I can take anywhere from one to two weeks.
Correct.
So if because, it also depends, if you’re buying an investment property, there’s tenants in there, they need to line it up with the tenants they need to line up the real estate, the real estate agents.
15:07
So there’s a lot of factors that can be in play and if we don’t have sufficient time to get that organized, then that can really push on the Run.
Its course, it’s really important to do ASAP.
Yeah, and that’s why it’s just important to have conversations with your broker as your leading up to signing a contract because they may advise you particularly if you are looking at setting, a finance cause that’s going to be relative to the bank that you’ve chosen and the position that you’re in, they may advise you that you need a longer or shorter Finance caused as a result of that.
15:35
And so if we look at the option where in many cases and it really does depend on the bank as well as the property.
But in many, many cases, a lot of banks are now taking what we call contract of sale valuations were as if they were, if they have enough data sitting in their computer systems and their evaluation systems to support the evidence of that contract of sale value and there’s nothing out of the ordinary with that particular property.
15:56
For example, it hasn’t been built in the last 12 months.
It’s not in a large acreage or it’s not a high density apartment.
That’s got less than 40 square meters.
Those types of things.
Yeah.
A little bit specific.
Then usually you’ll be fine with a contract of sale Val, which means they’ll just give you a valuation.
16:12
Exactly the same as the contract of sale with no inspection.
The other Of that to his high eliazar loan-to-value.
Ratios can also trigger a full value.
Yes.
So there are quite a few aspects that come into play in terms of when a full valve evaluation is triggered or just a computer based valuation.
16:29
Yes.
And then the last thing someone told me this the other day and I thought it was fascinating and it makes so much sense.
They are now being able to with the amount of satellites that we have access to do a curbside, which is more commonly known as a drive by surprise by via satellite.
16:46
The satellite was creepy, but kind of Thrones are coming around your property, right?
Probably be the way of the future with forceps.
Anyway.
So basically, I wouldn’t be surprised if slowly and slowly, we start phasing out full valuations, unless they physically need to go and inspect.
17:03
Yeah, something special about that property.
Well, I mean, I do, it’s very rare.
I’d say, I’d say, one out of a hundred times maybe two out of a hundred times, see that the bank’s automated valuation will not line up with the contract of sale?
You have to do is then escalate to a desktop or a full valuation anyway and it will generally come back fine but that’s where it’s really.
17:22
You kind of have to be careful if you have a private sale and your bidding you know, two hundred thousand dollars over asking and it’s not in line with comparable sales you have to be a bit careful because what would happen if if you purchased it’s higher than the contract of sale.
17:37
Yeah.
Sorry it’s higher than the valuations.
Come back.
What happens?
How do you make up that shortfall?
Yeah.
So this happens to on two occasions.
Can happen on two occasions.
I won’t say it will.
In six years of me, being a broker, I have only ever seen one established property valuation come in, short of the contract of sale.
17:59
Now, that was in a regional postcode, in Tasmania, very Regional area, the actual area.
How does he doesn’t turn over very regularly either.
So it’s sort of a generational type of area expense.
And then the other aspect of it to it, didn’t it didn’t.
18:16
The proper utility connections.
So it came in thirty thousand dollars short on a three hundred and thirty thousand dollar property, which is pretty significant.
Yeah, it’s big.
Now, luckily, for the client, they bought subject to finance, I had to valuations down with two separate Banks.
The second one came in, even lower than that.
And the client was able to go back and negotiate a lower sale price able to settle with the First Bank.
18:36
Yeah, so that was one scenario.
Now, I’ve never actually seen another established, probably come, in short, even in high demand times where properties are going up and up and up.
And I’ve had people ask me about, I still have not seen a full vowel, or a automated contract of sale Val.
18:52
Come in, short on a property, like that an established one.
The second one of the plan.
Yeah, those little buggers.
Yep.
So after plan properties, and I don’t want to poo poo on developer.
However, after plan, properties are risky from a purchases perspective, particularly, when it comes to valuations, because what you To think about is, I’m signing a contract today for something that settling into 34 years time exactly.
19:22
I have no idea what the state of the economy is going to be in two, three, four years.
I one does the developers are selling something that’s actually not yet built.
So first of all they’ve got to sell something.
Obviously that is hopefully going to be in line with Market values in that period of time.
19:38
Yeah.
And the other aspect of to it is if you think about development from a development Finance perspective and I won’t get too technical but But developers have to meet a certain profit margin to actually get Finance approval.
Yeah.
And so, they need to factor that into their pre-sales to ensure that they can actually get the finance to build the to build the other values together properties.
19:58
So yeah, you’ve got a whole bunch of factors that come into play here.
And if there is, then no comparables to what they have built in that area are literally building a whole new built Village correct as well.
Yeah.
Or a apartment complex or, you know, a dual Arc or whatever it might be.
20:16
A for townhouses, but if that’s quite new and up and coming in that area, there may not be the sales evidence to support that either because you may have a very established location that doesn’t have a lot of development activity, which can also mean that in a few years time, the pre-sales haven’t stacked up to what that, what the current market of the established properties are locally?
20:36
Yeah, that makes sense.
I mean, the best part is, is that if you are subject to finance in these conditions, you can pull out.
Yeah.
And so, if a vowel does come in short, you have to cover the You have to cover the Gap.
If you haven’t had some sort of clause in that contract to allow you to negotiate.
If something doesn’t go to plan, you need to cover the Gap.
20:53
That’s as simple as it is.
And the loan-to-value ratio is based off the valuation amount, not the contract amount and so that can really cause some issues for people.
If it does come in short, you need to have buffers in place, but it can also change your LM a premium if you’re in that space and all sorts of things.
21:12
So it’s something to be very aware of, but as we say, It’s very rare that it actually does happen.
Yeah, yeah, yeah.
But back to pre-approvals, we went off on a little bit of tension there, but I think it was an important one.
Yes.
When we are going from pre to formal approval, we do look at valuations the property, but then all they need is a contract of sale.
21:30
They may need a rental appraisal.
If they aren’t tenants in a property that you’re buying, that’s an investment.
That is genuine generally it.
And yeah sometimes they might ask for additional payslips together.
You’re still in your job.
Your financial position hasn’t changed yet often.
They just need confirmation in.
Writing.
21:46
Yeah, your financial position hasn’t changed and if it has because this happens where people change jobs in the middle of their pre-approval.
So I think that’s an important one to touch on two but generally if you’re in the exact same position that you were three months ago or your position has improved, we just advised the bank that nothing is changed and they may or may not need a payslip of something as yes to confirm to confirm otherwise you’ll then receive formal approval, pretty quickly.
22:13
And then it’s a matter of working towards settlement.
So that’s really where you go on conditional in the contract.
Once your financed has been fully approved, that’s when you can pay the remainder of your deposit and that’s where things get real rough to get the keys.
Yeah, so exciting.
22:30
One thing that you touched on, I just want to clarify as well was rental prizes.
Now, if you’re buying an investment property, you would have already told the bank, the approximate amount of rental income, you expect to receive when they’re assessing your application.
So when you then buy a property, if they already have tenants in and there’s a an existing lease in place, the bank must take that lease on board.
22:49
So if that’s lower than what they’ve assessed you out, need to be aware of that, it may impact your borrowing capacity.
Yes.
And the second element of that too, is if there’s no one in the property, it’s vacant.
Then you just get a rental appraisal.
It also must stack up to at least what we assess the application at, and then there should be no issues in terms of receiving formal approval.
23:06
Yeah, you usually can get them from the real estate agents selling the property here.
And the big thing to note is sometimes they give a range, right?
So they might say, for a four hundred thousand dollar property, It is a four hundred to four hundred twenty dollar a week rent that they think will be eligible with comparable sales.
23:22
So, they will take the lowest one.
Yes, they will take $400.
And one big thing to note is that if you get into a great position, you find an investment property that actually has a really high yield and is higher than six percent.
So say you purchased the property for four hundred thousand dollars and your rent is actually five hundred dollars a week or something that’s awesome.
23:41
Which is fantastic for you.
The banks will only take a maximum or most banks will only take a maximum of six percent rental yield.
Yeah so they won’t actually take that five hundred dollars.
They’ll take a little bit less capping it at 6%.
Yeah.
So that also is something to consider but generally it won’t affect it because we always buffer for a lower yield.
23:59
Anyway, when we go for an investment property per like to be conservative, we like to be conservative best position possible.
Now the other aspect that we haven’t touched on is well, what if you buy for less than your pre-approval?
Because I’d I 100% believe that whatever you expect to buy the property for You should put your pre-approval lean slightly above, if you have the capacity to do.
24:19
So that means that if you do go slightly above what you initially thought your budget was and I’m not talking 200,000 dollars above.
I’m talking a little bit and 20K then you’ve got the pre-approval already in place to cover that.
Yeah and we can bring the loan amount down after you’ve purchased but we can’t go the other way or it will require the pre-approval to be fully recessed.
24:39
Yes.
So it is critical that you make sure that the pre-approval is fully covering any potential purchase that you’re considering And then when you buy let’s say you’ve had a pre-approval to purchase for a million and you buy for 900,000 well then we just bring the loan amount down according to what you want to contribute.
24:55
Yeah well I contribute what sort of loan-to-value ratio you want to stay as well so if you want to stay at an 80% loan to value ratio, well then we’ll make it 80% of 900 instead of 80%, of a mil.
So exactly, there’s definitely a lot of wiggle room there and depending on how long it’s been as well.
Since you did get the pre-approval, we may also just do a quick reassessment of other options and make sure that you’re still in the best product at that.
25:15
I’m exactly if you’ve got time as well to do that to show because things can change particularly in the fixed rate space.
You can’t really lock in a fixed rate during the pre-approval process.
So, up until the point that you go, that you signed the contract, you fixed rates can jump around everywhere.
25:32
Exactly.
And we’ve seen that happen in the last couple of weeks.
You didn’t expect Commonwealth Bank, to raise their rates again.
Twilight twice.
And like to what?
Two weeks they’re fixed rates and we were just shocked about that yet.
They’re all jumping all over the place.
So unlike variable Rates that usually raised in line.
25:47
With the RBA fixed rates are not like that and they jump and creep up on you unexpectedly.
And it’s also in line with where the bank wants to see their cost of funds hitting, it’s not just around, you know, what are other Banks doing banks will price loans and they’ll give discounts accordingly to what they need to do as an example as we get closer to the banks and the financial year, they may have incentives that entice people in particular.
26:14
Segments, for example, they want to talk It owner-occupiers under 80% because their book is not geared enough that fart like towards the owner Rocks Under 80%.
So they might want to get more of that on board prior to their end of financial year, closing out, and therefore they put incentives around that.
Yeah.
Just like we like to diversify through shares and property purchases in their portfolios Banks like to diversify to, of course, they do, they need to do risk their book.
26:35
Exactly.
So it’s something to consider as well.
Another thing on that is that gasps you can purchase lower, you tend to be able to save you have actually going through an extended your prayer.
Approval.
It’s near the hundred, 180 a Mark.
If you purchase a little bit higher than your pre-approval Mount say that we’ve assessed you and we’ve got improved rule for you to purchase at five hundred fifty thousand dollars and you purchase 4560 you can still purchase for that we can keep the loan at the maximum amount that we pre-approved you for you’ll just have to contribute the rest with your savings.
27:06
Yeah might have made more savings and in three months people will if they’re actively looking to buy and they’re really wanting to say for a house they’ll increase their savings so it’s not all hope is lost That something is you know ten thousand dollars out of your price range.
You can just contribute that extra amount.
You just have to keep in mind that you may have to pay a little bit extra and stamp Duty and other little costs.
27:25
But generally, if it’s 10 grand more, you will contribute ten to twelve thousand dollars more.
Yeah, yeah, absolutely.
On that with extending pre-approvals from 90 to 180 days.
What do people need to do for that?
Yeah generally again it’s a confirmation that your financial position hasn’t changed and a couple of payslips if you’re Pi.
27:45
Y g, if you Self-employed depending on where you sit in the financial year.
Most banks require updated, financials in March, to May realistically in terms of the needing the most recent years financials.
So, for example, if you got pre-approved in December on your 2021 tax return and now it’s March, April, May, and you want to extend that, you’ve got to be careful that that Banks requirements.
28:10
Haven’t changed for you.
Now, to provide 2022 financials, which would require that fully assess again.
So generally, it’s Just a couple of payslips confirmation that your financial position hasn’t changed and potentially even they’ll need an updated saving statement confirming that your deposit is at the minimum level that it was previously as well, especially if you’re looking like under a scheme, I don’t I’m you can only generally have a scheme for 100 days.
28:31
Anyway like the first time guarantee but they will want to see that your savings is continue to grow because you need genuine savings for that as well.
Yeah but I wanted to touch on that in terms of when you go for extending a pre-approval, what Opens with the assessment rates and how the banks will reassess you will they reassessed you?
28:49
Yeah.
Or will they not?
Yeah, it depends on the bank, doesn’t it?
No, they will 100% reassess you and that is because nccp regulation last 90 days, compliance in a banking World last 90 days.
So at that period, they need to and we need to resend our compliance talking to reduce wind as well, but they need to reassess because that’s the maximum period of time.
29:07
They can have with that.
Same documentation being used.
The reason I want to bring up assessment Roots is most banks.
The same, they have a 3% buffer, so that Means that if we’re in current day and age if you’re going for it we have a five point two, five point two, five percent interest rate that we apply for in 90 days that will obviously increase, but they will be at say, at a 5%, the RBA increases, it increases or decreases, but yeah.
29:32
Say if you’re going for a 5% interest rate on your home loan, they will assess that an 8% because I want buffers in place that if it does increase you still have the capacity to pay them back.
Yeah.
So if you’ve been pre-approved on a an interest rate, It initially at 5%.
And then in 90 days time, there’s been three rate, Rises.
29:49
Now, you’re sitting at a 5.75 percent interest rate, that is going to have an impact on borrowing capacity.
So it means that at the 90-day Mark, if you haven’t bought by then, if you’ve gone pretty much up to your maximum borrowing capacity.
In the first instance, we may need to readjust your pre-approval the second time around and bring up.
30:06
So it is definitely incentive to try and purchase when you’re getting serious about buying and you are sort of locked in and wanting to buy within the next three months.
Get the pre-approval done then Don’t get it done.
Six months in advance of when you want to buy because it’s pointless to you for sure.
So if you can do it just before you’re getting really, really serious and starting to go to auctions and starting to go to Open Homes then you know that you’ve got the highest chance of that 90 days holding and that you’re not going to be recessed, a potentially a higher interest rate in 90 days time because the the interest rate does hold their assessment, right?
30:36
We’ll hold for 90 days.
If you’ve been fully assessed with no conditions and you’re servicing is passing, it will hold.
Which is great.
If you have out.
Outstanding conditions on a pre-approval or you’re still sort of negotiating the maximum purchase price, Etc, with the bank.
30:51
It’s not going to hold until that lands and the pre pre was granted that it will then that you have 90 days from there.
So yeah, it’s important which is why we really recommend not getting a pre-approval until you’re actively.
Look yes by because it is work for us.
31:07
It’s work for you.
Yeah.
You’ve got to provide a lot of documents and they’ve got to be updated document and its credit.
Yeah, and it gets on it goes on your credit report.
So it’s really important.
To make sure that you’re doing it at the time, and that’s relevant to the scheme as well.
Because scheme places only lasts for 100 days and if you don’t if you don’t buy on the scheme generally you can’t apply again.
31:26
Yeah so they’re always good things to note down and the last thing I really want to touch on is we’ve spoken a little bit about if your financial circumstances change.
And if you, if your job changes, that’s a big one.
And one of the things that we tend to see is that, I mean, generally people won’t change jobs for a lower salary.
31:45
Only if they’re in the same industry and they’re looking for progression in that industry.
Right?
Yeah.
So that will take a box definitely.
However, what you’ve got to remember is if you have been receiving variable income in your role where you’ve had over time, allowances, bonuses, commission’s, on top of a base salary, if you then start a new job, your starting from base zero, where you’ve got your base salary but you’ve accumulated no variable income.
32:10
So the bank’s only going to assess you at the base salary.
The banks can take your income from day one though, which is fantastic.
Particularly, if you’re in that pre-approval cycle, they generally want to say that you have no more than a full week.
Gap between your employment type of things, end date and start date of your new employment.
32:25
And they want to see continuation of your either your occupation or the industry that you’re in.
They want to see that continuation of I guess transferable skills.
So that they know that it’s highly likely that you’re going to stay in that job in.
You’re not going to be fired within the first week, for example.
Exactly.
Because people are on probation.
Correct.
So don’t do what I did.
32:42
I go from science to finance, that won’t fly.
The bank not fly.
We will definitely be back fully raised.
But in terms of looking at how the probation period impacts again, that’s a case-by-case basis with banks.
32:58
Yeah, some are okay with probation.
As long as those other criteria are met, the time between the jobs, the salary, not decreasing and you being in a permanent a permanent position and also if the obvious under 80%, you should be fine.
Yeah.
If the alveoli is over 80%, and you’re not with a major bank and they’ve got Sort of issues around Day One Employment here at equally with probation.
33:19
You may need to reconsider which lender you go with.
Yes.
So that again, is really important to have conversations with your broker around because generally, you can only get unconditional approval once you’ve started in the new role.
Yeah, if you’re a negotiating, a contract, but you’re starting in three weeks time.
Like, if you want to go, she adding a sale contract, a purchase contract to sign today, but you’re starting a new job in 3 weeks time.
33:39
Well, then you may not be able to get formal approval for another three weeks.
We finance and 14 days.
Can you because you don’t even have a name sighs your job.
Yeah, exactly.
So they’re the types of things to consider, but generally we’re looking at continuation of employment, maximum one month, Gap, and similar or higher salary base salary, where you can, or like the the base salary of the new job to encapsulate.
34:01
What we were assessing your previous job off.
Exactly.
Yeah.
So I think they’re the main things to consider pre-approvals.
I wholeheartedly believe in them, but I don’t think they’re for everyone either.
I think depending on your circumstances, you may not need it.
If you’re sort of You know, if you’re going through refinances and all that sort of thing, in a short period of time before a pre-approval and you’ve had recent assessments of borrowing capacity and that sort of thing, it may not be as important for you low loan-to-value ratios secure employment in terms of permanent full-time or permanent part-time.
34:35
You’ve been in that job for x amount of years.
You’re on a base salary, that’s easy to calculate.
All that sort of stuff, that is a low risk to a bank yet.
And so long.
As there’s no credit issues are, as we’ve said it.
Count conduct.
You should be okay.
Mmm.
Where you’ve got something.
That is sort of open for interpretation.
34:51
For example, we often sit there and in our broker notes to the bank.
We say, this is exactly the income that we’re using from the, from the clients payslips.
We’ve calculated this times, this equals this plus the overtime of this amount we’ve analyzed it.
We’ve taken this blah blah.
35:06
We write a whole script on exactly what piece of ink.
I want you to not have to think.
Don’t think just do what we did, please.
But if you leave Assessment open for the interpretation of a bank, they’re going to default to conservative.
So that’s where a pre-approval that it has been fully assessed and can be either negotiated back and forth with the bank if they see one thing and we see another and we need to sort of go into bat until we get it over the line.
35:33
Those types of things is where I think a pre-approval is really warranted for sure.
And I think that are warranted in most cases.
Anyway, we highly recommend them.
Yeah, pretty much everybody anyway.
So yeah, I think that we really wraps up the episode, it was a really good one.
Yeah.
Interesting.
We’re on our way to our charity event Nia so I’m excited.
35:50
Wish us luck, everybody.
We will have to let everyone know what we raised last when we do our next episode.
But I sure I get it’s a big one, ready?
Oh, yeah.
I’m say it 40,000.
Do you see how we go?
Last year?
We raised 25 the year before that was 11 and a half.
36:06
And the year before that was three, so we’re on a trajectory.
Hey, well, we’re going on exponential growth, right?
Yes.
If we do manage to raise this, Today we will manage to fully fund the two projects that we’re looking to support one in Bangladesh.
36:23
And one in Indonesia the their amazing program aging process, we go the Goosebumps.
What does that does?
Absolutely.
And it just put things, it puts things in perspective for you and it just makes you realize, you know, we all have hardships and we all have issues that go on in our lives and I never want to Discount, anyone’s hardships, but it puts it in perspective of just how You know lucky we just raelia in Australia.
36:49
Yes growing up here.
Living here in a first world country.
It makes a huge difference for sure on life.
Yeah.
So I’m very excited and this episode won’t come out for another week or so, but you’ll be able to hear from us.
Yes.
And I’m really excited to be sounds good.
Give a little update on how we go me too.
37:06
Awesome, Mady.
Well, we’ll see you soon.
See you say thanks.
Bye.
Thanks for listening to this week’s episode of you have my interest.
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