Getting pre-approved is an important step in the home loan process. Not only does this give you an idea of where you stand in the eyes of a lender, but it can also give you an edge over other buyers when it comes time to make an offer.
But can getting pre-approved hurt your credit score? Below, we explore some ways to keep your credit profile healthy when applying for pre-approval.
First, what is pre-approval?
Pre-approval is a statement provided by a lender indicating the amount you are likely to be able to borrow. It is conditional, temporary, and there is no guarantee that you will eventually get the loan you were pre-approved for.
Pre-approval usually takes about three to six months. So if it’s about to expire and you haven’t found accommodation yet, you’ll need to reapply or ask your lender if it can be extended.
Having a pre-approval up your sleeve allows you to narrow your search to budget properties. It can also signal to real estate agents that you’re serious about buying, potentially giving you a better chance of securing the home you’re looking for.
Will getting pre-approved affect my credit rating?
Before your lender can give you pre-approval, they’ll need to check your credit report for signs that you’ve been a responsible borrower in the past. When your lender does this, it triggers what is called a “thorough investigation”.
A single serious inquiry won’t jeopardize your credit score, but if you accumulate several over a short period of time, it can certainly weaken it.
So if you’ve applied for pre-approval from multiple lenders hoping to find the best deal, you might give the banks the impression that you’ve been repeatedly rejected. In turn, they might be reluctant to lend to you.
What can I do to protect my credit rating?
- Check your credit report for errors before applying
- Limit the number of applications
- Extend pre-approval instead of reapplying
If you know a lender will be combing through your credit history, it might be a good idea to request a copy of your credit report beforehand to make sure all the information listed is accurate.
If there are any errors (or issues that have since been resolved), you will need to contact your bank to set the record straight.
When it comes time to apply, one of the best things you can do is research your options carefully before contacting a bank or lender. Avoid the scattershot approach and try to focus on one or two that work best.
And if your pre-approval period is about to expire and you still haven’t settled on a property, consider extending it rather than reapplying. If you need to reapply, it may be better to stay with the same lender rather than find a different one.
What happens after pre-approval?
Once your lender has deemed you a suitable candidate and granted you pre-approval, you can start looking for a home with a clear idea of how much you’ll be able to spend.
Your to-do list will now be to find the right property. Once you have done this, you can begin the formal home loan approval process.
Your lender will make an estimate of the property and draw up a sales contract. They will also take a final look at your finances to make sure you can still comfortably afford to repay a loan.
If you’re considering taking out a loan but aren’t sure where to start, visit our home loan comparison page or browse the selection below.
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