Have you used a conditional approval before? If you’re new to the term, you may not realise the opportunity. A conditional approval is a handy tool to help you complete your property purchase.
Here are 5 things you need to know about conditional approvals.
1. What is a conditional approval?
A conditional approval is provided by a lender to show that, based on certain conditions, you will be able to borrow the money you need to buy a home.
Conditions can focus on a range of areas including common criteria such as your financial position and the value of the property. The aim of the conditions applied by the lender is to ensure that they have all the information they need to be able to confirm your approval.
While a conditional approval is a helpful tool to give you an indication of what is possible if the conditions are fulfilled, it’s always important to remember that you will not be able to access funding until they are.
2. Why do you need a conditional approval?
If you’re not sure what value of property you can afford, a conditional approval could be a good starting point. Applying for funding from the bank before you’ve found a property will give you an idea of how much you can borrow. It will also help you understand what conditions you need to fulfil to access the funds.
A conditional approval is also a helpful way to demonstrate to a real estate agent or vendor that you’re serious about a property. As well as showing your interest is genuine it will also demonstrate that you’re capable of making a purchase.
3. What do the conditions on your conditional approval mean?
The best way to understand the conditions of your approval is to have your Mortgage Broker or Manager explain them to you. Any conditional approval is likely to have a combination of conditions that are specific to your circumstances. In addition there are more standard conditions that are generally applied.
General conditions could include (but are not limited to): getting a registered valuation on a property; having a satisfactory sales and purchase agreement; or your financial position being acceptable to the lender.
4. Why should you try and reduce the number of conditions on your approval?
The likelihood of securing finance is dependent on not just the type of conditions but also on the number of conditions you need to fulfil. When it comes down to it, it only takes one unfulfilled condition to stop your finance from proceeding.
Your Mortgage Broker can work with you to minimise the number of conditions on your conditional approval and make it as easy as possible to move forward with your home loan. It’s important to understand the specific meaning of each condition so you can understand exactly what you will need to do to complete your finance.
5. How can you use your conditional approval
In a competitive market, a conditional approval can make it easier to move fast and take a property off the market. A conditional approval could demonstrate to a seller that you are in a position to secure finance and it’s worth beginning negotiations. It may give you the ability to make an offer before the property attracts more interest from the market.
It is possible to work with your lender to ensure that the conditions of your approval will not stand in the way of completing your purchase. This is essential if the property you want to invest in is going to auction. Bidding at auction based on a conditional offer without being clear on your position could leave you unable to fulfil the conditions and secure funding.
If you want to understand more about conditional approvals and your options, contact the team at iConsult Mortgage Brokers. We’re experts in helping our customers realise their property ownership goals and we can help you use conditional approvals effectively to secure your next purchase.