So you’ve gone through the pre-approval process, you have a “pre-approval letter of offer”, which feels more like formal bank jargon thrown into a document, and what exactly you’re looking at and where to go next doesn’t seem clear? Fair enough, it’s not always the best formatted or easy to read document, so hopefully I can make that a little easier for you.
First thing to note is that the letter itself is not binding in any way, and if you don’t proceed with the home loan pre approval the bank will not come to you asking for anything. This is the first letter from the bank confirming they are happy to loan you a certain amount of money, for a certain purpose, subject to certain conditions. This is their indication that they will lend, and working towards getting the pre approval letter unconditional is what will be the goal after receiving your first approval.
I’ve compiled the top things to look out for in your approval letter, what they mean, what parts are templated and which parts are the most important:
Your approved loan:
This is usually towards the top, and details the specifics of the loan facility that has been approved. Check the amount is what is expected, the loan term suits and whether or not interest only has been approved, these will all be detailed here.
It is important to know that the loan term detailed on this letter is the approved term, usually 30 years (or the maximum available) and deciding to pay off the loan faster is something that can be addressed later down the track when discussing loan structure.
It is also important to know that the interest rate included on your approval letter is typically the bank's standard (non discounted) variable interest rate. This is included as a placeholder for the purpose of interest and repayment calculations but you are in no way locked into this rate (hence them using a variable rate) and loan structure and fixed terms etc are addressed later on in the process much like repayments.
The Correct borrowing entity:
Usually somewhere around the loan details, it will be clear who the borrowing entity is. It could look something like Smith, John James & Jane Jannet, or Mr J J Smith & Mrs J J Smith etc. It is important to check this to ensure names are spelt correctly and all parties involved are listed as borrowers. This is also when you could have your trust or company listed as the borrower where applicable, and if the letter is approved under personal names where you had intended it to be in a trust or company let your adviser know so this can be corrected.
Standard loan conditions:
Most approval letters will have a standard template, which will outline standard conditions that banks will always want to include. Whilst important to take note of, it is also worth noting that they aren’t written for you specifically. They will be along the lines of:
You must sign x,y,z
You must have insurance on the property
You must make us your main bank
You must own the security property
You will let the bank know if your circumstances change
These conditions will not hold up your loan documents, structure conversation or an unconditional approval, however evidence of the insurance is required upon settlement and is done with your solicitors. It is also worth noting that I have never seen a bank follow up on who your main bank is after the settlement of your loan… so I wouldn't stress about that either. If you have any questions about which of these conditions you need to worry about at what time, your mortgage broker should always be able to help.
Expiry date:
This one shouldn’t be much of a surprise, but making sure your approval expiry is front of mind is important. Your adviser should be on top of this to extend when needed but the more minds on it the better. If this approval is before the day you are expected to settle that is fine, you will just need to meet all the conditions and confirm structure before the expiry.
Your loan specific conditions:
These are the conditions specifically for you, and are in different places on the letter depending on the bank. They will usually stipulate that they are specific to your loan approval and will have items like the following:
Credit card to be closed
Statements for a bank account to be provided
Sale and purchase agreement to be provided
Security property to be acceptable to the bank in all respects
These will all need to be completed before structure and documents can be arranged. Usually the bank will prefer that they are all provided at one time instead of in dribs and drabs, and so getting the property purchase over the line is the next step from here.
If you have any questions, please reach out!
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