Pre-approval is Not Finance Approval

We recommend that all buyers obtain a pre-approval prior to looking for a property.  It enables you to work out the amount you can borrow so that you only look at homes that are within your budget.

We do not recommend you rely on such pre-approvals when considering whether or not to place a cash offer on a property.  If you do decide to make a cash offer solely reliant on the pre-approval you should only do so providing you are 100% certain you can obtain formal finance approval and more importantly settle within the timeframes specified in the Contract for Settlement. 

A pre-approval only provides advice that you can borrow up to a certain amount based on limited information given to the Bank. Once the Contract is signed you still need to submit an application for formal finance approval. The Bank will reassess/verify the information provided to obtain the pre-approval and may ask for additional information as well as a valuation of the property. It is not unusual for formal finance approval to take between one and three weeks from the date the formal application is submitted.

Once the finance is formally approved the Bank needs to prepare mortgage documentation, have the documents signed by the client, returned and verified and this again takes between one to three weeks, not allowing for mistakes or changes you may need to the way the loan is structured.

If you are considering placing a cash offer please remember to choose a settlement date that is 7 to 8 weeks from the date of the Contract. This will allow approximately three weeks from the date of the Contract to obtain formal finance approval with a further four to five weeks to effect Settlement. Failure to allow this amount of time may result in Settlement being delayed and you may incur penalty interest.

Please also note the Seller is under no obligation to allow a Valuer access to the property where a cash offer has been made.  Should this occur it may further delay you obtaining formal finance approval.

Even in today's electronic age, the banks still require you to "wet" sign mortgage documents before being able to settle electronically. Whilst electronic settlement is saving time in some areas this is not reflected in the bank's current processes. See the article in our Blog about Electronic Settlement for more information.

Moving house is stressful enough without adding to your stress by entering into a Contract with impossible timeframes.