How Far In Advance Should You Apply for Bank Financing?
You have finally reached the age where you feel that it is right for you to buy a house. So you go online and start clicking through all those lovely houses on sale when suddenly the perfect house jumps out at you. If you weren’t married already, you’d swear that this was the love that you have been waiting for all your life. The house is just gorgeous and you feel like you can afford it too. Well, with a little help from the bank. That is when you realise you haven’t even applied for a bank loan yet. This is when the bad news starts pouring in.
If you have excellent money management skills, then your credit rating will be fine and your bank would love to give you a loan. But just because you have excellent credit does not mean that they will send someone right over with a briefcase full of money as soon as you call. In fact, they might not send someone over with that briefcase for about 6 weeks.
Getting a mortgage today is not as easy as it was during those milk and honey days before 2007 and the credit crunch. Now banks do their homework. They go to great lengths to make sure that you qualify and then they go to even further lengths to double check that information. Yes, in some institutions, pre-approval may take as little as 24 hours. What this means is that you know how much the bank will be able to offer you should everything go to plan.
The period between pre-approval, processing and actual payout is the problem. This could take weeks. 4-6 weeks actually, depending on your lender of choice.
Keep in mind that the banks are more lenient in approving loans whenever you pay a higher deposit. So some people negotiate with the seller if they can pay the deposit in monthly increments for, say about 12 months to 2 years. In that arrangement, it becomes easier to shoulder 20% or more for the deposit.
The steps of the process
We have spoken of the pre-approval step, which might take the shortest period. Most lenders will be happy to pre-approve you based on your financial records.
The pre-approval letter can be used as a surety that you will, at some point in the future, be able to afford the house you want. The good news is that you can use this to make an offer on the house you want. Most sellers will be willing to consider your bid provided you have a letter from the bank showing that you might qualify for a certain amount. Now come the problems.
The entire loan process
The banks will have to go through your financial records and history to ensure that you will be able to pay them back should they trust you with their money. This assessment process could take weeks. It will even involve the valuation of the property in question. Surveyors will be called in and so will solicitors. Suffice it to say, it won’t be done in two days. But then again, neither are most house sales.
As long as you have been pre-approved, most sellers will be willing to work with towards buying that house. The entire process might take about 6 weeks, sometimes even more. Many lenders take about a month to go through the whole dog and pony show. So, how far in advance should you apply for bank financing? Try a couple of months, just to be safe.