Pre-approval simply means a lender giving you a committed indication that they’d be likely to approve a home loan. According to our research, 63%1 of Australians get pre-approval before they attempt to buy or bid on a property.
But is it as valuable as you think?
In our view, not really. If you want to take a whole lot of stress out of the home-buying equation, you should consider getting full Nano approval^ before you go to bid or buy. That way, you know exactly where you stand and any lingering uncertainty about ‘can-I-or-can’t-I-afford-this?’ disappears.
What is pre-approval?
It’s simply approval in principle – in other words, an intent to offer a home loan, not an actual offer. A lender will look at your finances and say “we think you can afford up to $X”. But it’s subject to many disclaimers, and is by no means guaranteed.
So, why do people bother with it?
People often get pre-approval to help try and understand their borrowing power – particularly when they’re a first home buyer or if they have a smaller deposit (e.g. 15%).
Also, when the market is hyper-competitive, people may believe pre-approval can give them an added edge to show they’re a serious buyer.
Why pre-approval has shortcomings
When a lender first looks at your finances, they may not do a completely thorough assessment, and this can lead to an overestimation (or underestimation) of your borrowing power.
Also, checking finances is only one part of the equation. A big part of deciding on a loan approval is the property valuation which can impact how much a lender is willing to lend.
Picture this scenario: you’ve been led to believe you have approval, then you win at auction or have an offer accepted. But only then does a proper assessment begin. You anxiously wait weeks for your lender to get back to you, only to find that they won’t lend you as much as you’d thought.
If you’ve already bid on a property and paid your 10 –20% deposit, this can be an extremely stressful period, as you don’t really want to be left wondering whether your pre-approval will turn into full approval after the fact.
That’s why at Nano, we help you avoid that stress (and risk) by encouraging you to get full Nano approval^ instead.
How Nano’s approval differs
We skip pre-approval and go straight to a complete approval to give you more confidence and certainty. If you’re asking yourself;
- I want to make an offer, can I afford this property? or
- I’ve had an offer accepted, will you approve my loan?
Then Nano approval is all you need.
How it works
Using the following steps we can digitally assess your application in minutes, not weeks:
1. The property
Enter the property you’ve got your eye on, and we’ll check its value and eligibility in real time. We ask for the maximum price you are willing to pay for this property and the amount you want to borrow. Immediately in the background, we can do a property valuation.
2. Your details
Next, we ask for your relevant personal information, employment status and, if you are applying with someone else, we’ll ask for their details too.
3. Your financials
We look at your income, expenses and ability to service the loan. We complete these checks digitally, making the whole process fast and easy. At this point, we already have a good idea of your finances and whether you can afford the property.
4. Verify your ID
Final step is to verify your ID, which we do online in minutes, so there is no need to go into a branch or have anyone come to your house to confirm your identity.
5. Finalise your approval
At this point we can confidently tell you whether you can buy the property up to a certain limit. Unless there are any changes to your financial situation or you’ve made an offer or bid above the approved amount and need a larger loan, your Nano approval should help you sail through settlement.
Embark on your home-buying journey with confidence
When you look at the big picture, it’s clear pre-approval seems like an unnecessary additional step. Full Nano approval gives you much more security and peace of mind as you progress toward ownership.
NB – If you’re early in your buying journey and you want to understand how much you can afford to buy, try using our borrowing power calculator. You can also test how much stamp duty you need to pay and how much you need for a home loan deposit, instead of pre-approval.
Once you’ve got an idea of the property you want to buy, go for it!
Apply for Nano approval so you can bid, offer and buy with real confidence.
^ Full approval is subject to credit eligibility criteria. Nano may withdraw an offer and decline to make a loan if your circumstances change.
1. GWI Custom Research to 704 homeowners, September 2021.