Virtual Affairs

VA concepts: Progressive Mortgage Pre-approval

By Virtual Affairs

Buying a new home is a fun experience for most consumers. But it can also be frustrating, confusing and even a bit scary. Such a big decision also raises many questions. Should I hire a real estate agent? What should I pay attention to? And most importantly: does this house fit my budget? In blooming housing areas, the competition among buyers adds stress. For first-time buyers it’s hard to get in on the action.

Of course, there are enough banks and financial advisors in the market who can help (new) home buyers with this. But that also offers yet another moment of choice for the consumers. Because of the high competition in the market, lenders must distinguish themselves with more than just low interest rates. The focus must shift to customer centricity. The customer needs a trustworthy institution that helps with the buying process from the start. One of the ways to help consumers is by providing mortgage pre-approval .

What is pre-approval?

Mortgage pre-approval is the approval of a financing application before there is an official purchase contract. An early approval can take the form of a (digital) document issued by a lender. It shows home sellers that the consumer is a serious buyer. In function, early approval is comparable to the bank guarantee. It gives some  security to the seller. But security is difficult to offer when no information is known yet about the house to be purchased, especially in highly regulated markets such as The Netherlands. That is why Virtual Affairs is studying what we call 'progressive pre-approval'.

Advantages of pre-approval

It is certainly worthwhile to explore the possibilities of pre-approval.

  • It gives the buyer insight into his own position on the housing market and gives peace of mind about the feasibility of the purchase at a very early stage.
  • The customer has a stronger bargaining position compared to consumers who do not have a validation of their possibilities.
  • It creates a relationship between the customer and you as a lender early in the purchase process. This increases the chance that the customer will close the financing with you.

 

Progressive pre-approval

It is not easy to realize approval in advance. Until a provisional contract is signed, there is uncertainty about the purchase price, the amount of necessary financing and about if the customer is prepared to acquire the loan. The latter factor also influences a customer's willingness to provide information.

This can partly be overcome with a simplified and accelerated progressive onboarding process. Progressive here means that the consumer does not provide all the information at once. The information the consumer supplies, is requested in stages. In between those stages, the information is enriched with validated information from other sources. 

Success factors

It is the lender who implements this concept. Based on the available information, a statement can be issued by the lender about the feasibility of a home financing. To be successful in this, there are a few conditions

  • An excellent 'customer journey': it must be super easy for the consumer to make a request.
  • Implementing the right integrations: the consumer should make as little effort as possible to add validated information to his or her file.
  • A clear and inviting onboarding with a concrete reward in every step.
  • Secured compliance in your communications.

What does pre-approval look like?

The more information available, the more valuable the pre-approval statement becomes. Progress can be monitored by means of, for example, a "traffic light" system. When the information is entered, there is a red traffic light for a no-go, yellow means that there is a need for further clarification and green means that all information is available for a pre-approval statement. The pre-approval statement then indicates how certain a home financing is for the customer. This offers the following added value

The customer is more satisfied because of more peace of mind and a stronger position in the housing market.
The client is willing to continue the process of home financing with the same lender, as both have already invested in the relationship.

As a lender, you also put a new and modern proposition in the market, which leads to a competitive advantage and new customers.

Challenges

Of course, pre-approval also has its challenges. The customer must be able to execute the process at his own pace. It’s crucial to find the right integration parties to secure progress in the process without jeopardizing the value of the information within the system. Compliance must be secured and with new propositions that is always a challenge. Finally, it is important for the confidence of the consumer that he always feels that he is leading and in control of the process.  But well executed, progressive pre-approval enables the customer to do more himself and offers the opportunity to automate processes. This in turn gives room for mortgage providers to paying more attention to the other parts of the advisory process in the personal interaction. This benefits the quality of the advice and the relationship with the customer. And that benefits everyone.

Curious to see what pre-approval can look like for your organization? Contact us here.