Pre-approved finance: Avoid losing it with a pre-purchase building inspection
Buying a house can be stressful at the best of times. Often it feels like there’s so much going on at once, it’s hard to get all your ducks in a row and actually buy the home you really want. So thinking about a pre-purchase building inspection might not be the first thought on your mind!
However, the advice I give to new home buyers and seasoned investors alike, is to get pre-approved finance as early on in the buying journey as possible – and make sure that any home you’re keen to buy will be covered under that finance with a pre-purchase building inspection.
The last thing you want is to fall in love with a home, sink time and energy into making an offer, then miss out because you can’t get the right finance in time or because the house isn’t covered by your pre-approval.
What is pre-approval?
When we talk about ‘getting pre-approval’, it’s basically a guarantee from your bank that they will lend you money. Two forms exist: Initial pre-approval, and specific pre-approval.
Initial pre-approval may be acquired from your bank at any time, whether you have a house in mind or not—it’s basically just an expression of how much money your bank is willing to lend. For example, you may get a letter from the bank saying you have pre-approval up to $600,000, meaning you should limit your search to houses in that range.
Specific pre-approval comes when you have a house in mind. The bank will want to know details about the condition and valuation of the house, along with your income, expenses and history, and will make a decision based on this whether they will lend you money for the particular property you’re hoping to buy. This means that you’ll be able to leave the bank armed with a letter saying, for example, that they’ll loan you up to $575,000 for 12 Pond Street.
Why is it important?
Having pre-approval takes a lot of the worry out of buying a house, and gives you an edge over other buyers.
When the market is hot, sellers will often only consider offers from buyers who have pre-approval. Think of it from their perspective: They don’t want to enter into an agreement with someone who might not even be able to come up with the money—that’d be a waste of their time, with so many other willing buyers out there. Gaining pre-approval means a fast, easy purchase, putting you one step ahead of others in your shoes.
Pre-approval also helps you set boundaries. There’s nothing worse than looking at a bunch of open homes, falling in love with your dream house, then realising the bank won’t lend you money for it.
What can prevent pre-approval?
Plenty of factors affect gaining pre-approval: Your personal finances (incomes, expenses, type of employment, credit history, assets), the house’s valuation, and condition.
The majority of these are out of your control, but not the house’s condition. Often a house can seem like it’s in great condition aesthetically, yet have major issues lying just under the surface. That’s where a pre-purchase building inspection comes in. Some banks may not give pre-approval for houses that may have:
- Roof issues (rust, significant leaking etc)
- Old wiring and electrical board (these may require an electrical inspector to check)
- Dux Quest plumbing (popular in the 1970’s, but found to have serious leaking issues)
- Age (anything pre-1940’s may have specific criteria to meet, such as no scrim)
- Foundations (houses made with old totara poles will typically suffer from rot)
- Cladding type(some banks have specific criteria for high risk cladding types, such as cladding on a cavity system)
A good pre-purchase building inspection will quickly unearth any of these issues.
Taking the time to invest in having any potential future home thoroughly checked over can not only mean gaining pre-approval and an advantage over other buyers, but also saving unnecessary time wasting and heartbreak, should issues arise.
Rather than leaving a building inspection to be part of the mad rush before settlement date, get it out of the way nice and early, and make sure that your financial pre-approval is secured with a pre-purchase building inspection.
