Finally, we have completed all our steps to reach the Pre-Approval stage. This is also known as Conditional Approval.
Pre-Approval is normally based around you and your circumstances and allows the Lender to have most of the work done prior to your new home purchase. A Pre-Approval will last no more than 3 months. After 3 months have lapsed, the Lender will normally require you to re-confirm your employment, income and funds to complete the loan process.
In order to obtain final conditional approval, the Lender will need to assess the suitability of the property that you choose. Normally, you will have a discussion early in the peace around what type of property you are looking for and where it is located. This is very important, as the Lender will look at this from a “risk” point of view. If you were to default on the loan, how quickly could a Lender sell the property to recoup any loss. As an example, it would be easier to sell an inner city 4 bedroom home than a 10 acre property in a remote regional location.
The Lender will order a valuation based around the risk of the individual property. If you have less than 20% deposit and require Lenders Mortgage Insurance, a special team from the Insurer, will also need to assess the entire file and valuation to ensure that there are no adverse risks where a claim may be required down the track. They are also making sure that if a claim were to occur, that they would actually agree to pay the Lender for their loss. In this case, it is actually the Mortgage Insurer that has final right of approval – not the Lender.
Finally we move on to Full Approval or Unconditional approval. This is when you can be sure that you have the means to purchase your new home. The Lender will notify your sellers and their solicitor. A formal Letter of Offer will be prepared by the Lender, along with your new Mortgage Documents. The are normally sent to your Broker who will go through them with you prior to signing. In all cases, the documents will need to be witnessed by a JP. It is handy to locate a JP while you are waiting for your Documents to arrive, so you are prepared.
Once the Lender receives the documents all signed and complete, they will liase with your Solicitor, and organise a convenient settlement date to both parties. In the event that you are re-financing or just increasing your existing loan, the Lender will still arrange a form of settlement date to make the arrangements.
Prior to the return of your documents, your Lender will normally insist on certain insurance documents to be sent back in the package. At the very least, they will require House Insurance equivalent of the “Valuation” of the property. The property technically belongs to the Bank while you still owe funds on your mortgage, therefore, they need to know their asset is protected in the event of a fire or major catastrophe.
You may also consider insuring your contents against any loss or damage once you move in. Most insurers will create a discounted package for both House and Contents insurance together. Other items you may wish to consider are Life Insurance and Income Protection. Now that you have a new debt level, it may be important to protect yourself and family members from the impact of any loss of income and the effects involved.
Finally our Settlement day has arrived……. I usually recommend that you arrange a pre-settlement inspection the day before settlement. This will allow you to pick up on any loose ends that may not be to your satisfaction prior to your Lender handing over the loan funds. In this case, your solicitor can arrange to extend the settlement until you are happy to proceed.
Now you are free to move into your dream home……….
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