Why you need a proper pre-approval

“This makes for a great deal of anxiety for both buyers and sellers,” says Jan Davel, MD of the RealNet estate agency group. “However it can easily be avoided if prospective buyers get loan pre-approvals from their banks or through their originators before they start viewing properties.”

Most sale agreements, he explains, contain a contingency clause that provides for the sale to be cancelled if the buyer cannot obtain the required home loan within a certain period. Such clauses are referred to as “suspensive conditions” and consumers should be on the lookout for this terminology in their sale agreements.

“But only about half of all loan applications are being approved at this stage, and the process can take much longer than anticipated in the sale agreement, especially if the buyer has to apply to more than one bank to secure an approval.

“Consequently, an increasing number of sellers are reluctant now to accept offers from buyers who don’t have loan pre-approval. They just don’t want to run the risk of taking their home off the market in the belief that it has been sold, only to find several weeks later that the prospective buyer’s home loan application has been refused and that they have to start marketing the property all over again.”

There are also other advantages to obtaining loan pre-approval, Davel says. “Among these is the fact that you will know your buying power, and can save time and money by only viewing homes that you can actually afford to buy.

“And having got past the price point, you can pay more attention to the features of each home you do view to see if it meets your preferences in other ways. In other words, you will be able to make sure you are getting the best value for your money.”

In addition, he notes, obtaining pre-approval for your loan will put you in a strong negotiating position, not only with the seller but also with the bank when it comes to getting the best interest rate on the loan itself, which can save you many thousands of rands on the total cost of your home over 20 or 30 years.

“The reason for this is that a loan pre-approval is usually only granted after the lender has already had a close look at your financial situation and determined that you are a good credit risk – that is, that you have a strong credit record and more than sufficient income to make the home loan repayments each month.”

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