Don’t go house hunting without a pre-approval certificate! (Updated 04 Feb 2023)
After reading this article you will know:
- What is a pre-approval certificate?
- Why house hunting without a pre-approval certificate is like going grocery shopping without knowing whether you have money in your wallet
- That a pre-approval certificate is free and where to get one
- Get pre-approved with ease! Submit this list of personal documents for a hassle-free pre-approval certificate.
- The pre-approval certificate is not a guarantee of a home loan
- How to guarantee you get a home loan after you’ve obtained a pre-approval certificate
- Don’t sign an offer on a property for the exact amount you’re pre-approved for!
- How to use the pre-approval certificate as bargaining power when you are ready to make an offer on a property
What is a pre-approval certificate?
Tips on a Pre-approval certificate!
A pre-approval certificate is a document that confirms the home loan amount that you qualify for before you go out house hunting. This way you can plan for the area and the price range that you want to buy in. It also confirms that you do indeed qualify for a home loan. This offers you great piece of mind when you go out hunting. Not having a pre-approval certificate is a bit like going out grocery shopping without really knowing how much money you have in your wallet, or worse, whether you have money in your wallet at all.
If you have a pre-approval certificate, you may not only know how much you qualify for, but you’ll also know that you do indeed qualify for a home loan. There is nothing worse than applying for a home loan on a property that you fell in love with that cost R1 200 000 but then you find out that you only qualify for an R900 000 home loan. Or worse, you don’t qualify for a home loan at all. This way, if you get the pre-approval certificate and it says you qualify for a home loan of R900 000, you’ll know to not even look at properties that cost more than that. So not only does a pre-approval certificate offer you peace of mind, but it also offers you clarity, and clarity is power. Now you can go house hunting knowing what you can afford.
This pre-approval document also gives you bargaining power when you are ready to make an offer on a property. We will get into this a bit later in the article.
A pre-approval certificate cost nothing and is obligation free
It is important to note that a pre-approval certificate is a free document. It cost you nothing to get it. You can get it from the home loan department at your bank or you can get it through a bond originator. Regardless of where you get the pre-approval document from, you are under no obligation to use that same source when you apply for the actual home loan.
Why a bond originator?
Ideally, you want to contact a bond originator to assist you with a pre-approval document, because when you are ready to apply for a home loan that bond originator already has your FICA documents on hand, and you do not have to re-submit these documents. You would also already have established a relationship with the bond originator, and the bond originator would know your personal circumstances by now, which will make the home loan application so much easier. There is a whole article on “Why you rather want to use a bond originator instead of going directly to your own bank when you apply for a home loan”, so I will not get into that in this article. Let us just concentrate on the pre-approval certificate for now.
Start your home-buying journey now with a pre-approval certificate!
Get pre-approved for a home loan with ease! Just pick up the phone and call a bond originator. Let them know you’re ready!. Depending on the company that you contact, you will either complete your contact details on their website, and they will call you back, or you will get through to a bond originator directly.
Personal documents required to obtain the pre-approval certificate
The bond originator will request a list of personal documents from you so that they may complete the pre-approval on your behalf. If you are an employee, they will require three months’ bank statements, three months’ payslips, and a copy of your ID document. Get ready to show proof of your income if self-employed. Banks need 6 months’ bank statements, company docs & letters from accountants to confirm finances.
Once the bond originator has received all the relevant documents from you, it normally takes between 24 and 48 hours for them to get back to you on the home loan amount that you qualify for.
Your credit score
Complete the form to give bond originators the authority to access your credit profile and check your credit score!
Don’t be misled by pre-approval, it’s not a guarantee for a home loan approval
A Pre-Approval Document is not a 100% sure thing!
It is also helpful to mention at this point that a pre-approval document is not a 100% sure thing. Beware! Your pre-approval for a home loan doesn’t guarantee final approval. Stay prepared for surprises during the loan process.
How does this happen? Your financial situation may have changed between the time that you received your pre-approval document and the time that you apply for the home loan.
Avoid buying big items on credit before buying a home. It reduces your ability to repay the pre-approved loan.
Don’t buy anything on credit before securing a property with a home loan approval and a successful transfer to your name. Remember, even after a bank may have approved your home loan application, they can still withdraw it before the property registers in your name, if they find that your financial situation may have changed. So only focus on getting the property registered in your name. Wait until the property’s in your name to buy furniture and add those special touches to your new home.
Never buy a property for the exact amount on the pre-approval certificate
By now that you know what the amount is that you qualify for, you know in which areas you can go look for properties, and you know the price range in which you can shop for a house.
What I’m about to share next, is especially important. Never overstretch your budget by purchasing for the maximum pre-approval amount. Wise buyers stick to what they can afford. Aim to shop for homes around R700,000 if you’re pre-approved for R900,000. This way you know that you stand a much better chance of getting approved for the home loan.
You also know that you will be able to afford the monthly home loan repayments as there are normally a lot of additional monthly costs after you move in. Don’t be in such a tight spot that you’ve moved into your new home, but you can’t sleep at night because you have financially over-extended yourself. Enjoy your new home knowing that you can afford it and all the associated costs that come with it.
Using the pre-approval certificate as bargaining power when you negotiate with a seller
Tips on using a pre-approval certificate as bargaining power!
Inform the real estate agent of your pre-approved home loan when you find a property of interest. This is like music to their ears. This way they know that you will not be wasting their time and that you are a serious buyer. This is also good news for the seller because his main objective is to sell the property as quickly as he can to a buyer that can actually afford the property.
NEVER REVEAL YOUR PRE-APPROVAL AMOUNT TO REAL ESTATE AGENTS! It is none of their business. Don’t reveal your pre-approval amount, keep bargaining power by keeping it private. Keeping your pre-approval amount private prevents sellers from countering closer to your maximum budget.
Maximize your chances by getting pre-approved before making an offer. The seller may choose your offer even if it’s lower if they know you’re approved for a loan.
It is more important to the seller to have a qualified buyer than to accept a higher offer and risk losing the sale because the other buyer might not qualify for the home loan.
Now you know a pre-approval certificate is literally like a piece of gold. Get a pre-approval certificate, it’s valuable, and best of all, it’s free! So, don’t go shopping without knowing how much money is in your wallet. Ignorant people or those with abundant money buy at the maximum pre-approved amount, disregarding the cost. However, until that day, I’d recommend you get that pre-approval certificate.
Happy house hunting.
Last updated: 31 January 2023