Approval in Principle
Last updated on March 31st, 2023
What does it mean when you hear that your loan has: 'Approval in Principle' ?
When searching for a home loan in Australia, you may come across the term 'Approval in Principle' (AIP), also known as a pre-approval or conditional approval. This is an important concept for prospective homebuyers to understand, as it can provide valuable insights into their borrowing capacity and streamline the home buying process. In this article, we will explore what Approval in Principle means, the benefits of obtaining it, and the factors that can affect your AIP application.
- What is Approval in Principle?
Approval in Principle is a preliminary assessment by a lender that indicates how much they may be willing to lend you based on your financial situation, subject to certain conditions being met. It is important to note that AIP is not a guarantee of a home loan; instead, it serves as an indication of your borrowing capacity based on the information you provide to the lender. The final loan approval will be subject to a full assessment of your financial situation and the property you intend to purchase.
- Benefits of Obtaining Approval in Principle
There are several benefits to obtaining an Approval in Principle before you start your property search:
a. Better understanding of your borrowing capacity: With an AIP, you will have a clearer idea of how much you may be able to borrow, which can help you narrow down your property search to homes within your budget.
b. Increased negotiating power: Having an AIP demonstrates to sellers and real estate agents that you are a serious and qualified buyer, which can give you an edge in negotiations, particularly in competitive markets.
c. Faster loan processing: Since the lender has already assessed your financial situation, obtaining a final loan approval may be quicker once you find a property, potentially allowing you to secure your dream home faster.
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- Factors Affecting Your Approval in Principle Application
Several factors can influence your Approval in Principle application, including:
a. Credit history: Your credit history, including your repayment history on other loans and credit cards, will be taken into account by the lender when assessing your AIP application.
b. Employment and income: The lender will consider your employment status, job stability, and income to determine your ability to repay the loan.
c. Existing debts and liabilities: Your existing financial commitments, such as personal loans, credit card debts, and other liabilities, will be factored into the lender's assessment of your borrowing capacity.
d. Deposit and savings: The size of your deposit and your savings history may also influence your AIP application, as a larger deposit and a strong savings history can demonstrate your ability to manage your finances responsibly.
- How to Apply for Approval in Principle
To apply for an Approval in Principle, you can approach your preferred lender directly or work with a mortgage broker. You will need to provide a range of documentation, including proof of income, bank statements, identification documents, and information about your existing debts and liabilities. The lender will then assess your financial situation and provide you with an AIP, typically valid for 60 to 90 days.
Approval in Principle is a valuable tool for prospective homebuyers in Australia, providing insights into their borrowing capacity and potentially streamlining the home buying process. By understanding what AIP entails and how it can benefit your property search, you can navigate the Australian housing market with confidence and make more informed decisions about your home loan options.
Speak to a mortgage broker today about Approval in Principle and the finance options related to your next investment or home purchase.
