Steps to Home Loan Pre-Approval
Buying a home is one of the most exciting things you'll ever do - so you want to focus on finding the right place, not worrying about how you'll pay for it.
You don't need to find your new home before you apply for a loan. In fact, it makes sense to arrange your home finance first.
If you want to have a clear picture of how much you'll be able to borrow to buy a home, then you should consider applying for a home loan pre approval.
What is a home loan pre-approval?
A home loan pre-approval is a written assessment from a bank or lender of your financial situation.
A full home loan pre-approval will include an assessment of your ability to repay a mortgage, based on your current income, living expenses and other loan repayments you may have.
It will also assess you willingness to repay the home loan, based on your credit history, the stability of your employment and how regularly you change your residential address.
The pre-approval wil give you a maximum borrowing amount, based on all of this information.
A home loan pre-approval is valid for 3 months, but can be extended if you don't find a home within this time.
Why Should You Get a Pre-approval?
Getting a home loan preapproval means that when you find the perfect property, you'll be ready to move confidently on the purchase straight away.
With your home preapproved, you'll have total confidence about how much you can afford. You'll also know exactly how much the bank will agree to lend you towards your first home.
It'll also make the final settlement of the loan with the lender much smoother, once you've found the right property and signed the contract for sale.
Know Your Purchase Price Range
When you're searching for a home it pays to look at places that are under the maximum borrowing amount to give yourself some flexibility if circumstances change in the future.
With a pre-approved mortgage, you what your maximum budget is, so you can make the most of your time searching for the right home.
You'll have a better idea of what to look for, as you won't waste time looking at properties that are outside your price range.
Get a competitive edge at purchase
With a pre-approved mortgage you can make a strong offer on a property immediately, as you've already got the finance behind you.
You'll have a competitive advantage to make an offer or to bid at auction on the right home, as you can show the vendor that you're already positioned to fund the purchase.
With the loan pre-approval in place, the purchase process will be smoother for both the buyer and the vendor, with fewer details to be worked through.
A home loan pre-approval means you can make an offer on a private property sale, 'subject to finance'.
You've shown that you're a serious buyer by arranging finance in advance, so in some cases the vendor may even accept an offer below the list price and take the property off the market once the offer is accepted.
With a maximum purchase price set by your loan pre-approval, you can also bid confidently at auction. This opens up one more option to find the perfect home.
Buying At Auction with a Pre-Approval
Once you have your pre-approval in place, you can bid confidently at home auctions. You'll need to have your deposit ready up front.
Ideally you'll want to know what the property is really worth, with a valuation and a building inspection complete before the auction day.
If you do pay more than a fair price for the property, you might not have the final loan approved. If you're bidding at auction, get your mortgage broker to do some research and give you an idea of the property value to maximise your chances of a smooth loan settlement.
6 Steps to Home Loan Pre-approval
Getting a conditional approval for the amount that you can borrow will mean getting a full financial assessment with a lender or a mortgage broker, but it's worth the effort, as the purchase process down the track will be much smoother.
Step 1: Meet your mortgage broker
If you're ready to make the leap into the property market, the first step you should take is finding out what your loan options are. You can do some online research to get a rough idea, using mortgage calculators to find your borrowing power.
To get a formal pre-approval, you'll need to make an application with a lender for the loan that you choose for your home. Using a mortgage broker at this point gives you the choice of loans across a range of lenders, including options that aren't available at retail banking outlets.
A pre-approval with a lender for the borrowing amount will require a full financial assessment. You can apply online for a pre-approval, or if you prefer, make an appointment to discuss your financial position, income, savings and existing financial committments.
Even if you do apply online, it's a good idea to talk to a broker about your situation to make sure that you're going to be comfortable making repayments on the amount that you're approved for.
Step 2: Get a full financial assessment
You'll need to have a full assessment done. This means adding up your current savings, your income, as well as money that you currently owe. The lender will also check your credit score to see how you've managed finances in the past.
This will usually mean you'll need to provide bank statements, and identification, as well as proof of employment and your residential history.
With this information, the lender decides your ability and willingness to repay a mortgage loan.
If you do have lower credit score, be sure to explain to your mortgage broker how this has come about. They'll be able to fit you with the best lender, and to write an explanation to accompany your application.
Step 3: Choosing your home loan
Once a mortgage broker has a full picture of your current situation, they will make recommendations about your best home loan options.
At this point you'll choose the lender that you think you'll want to take out your mortgage with. A pre-approval isn't a final committment to the lender, so if you need to get approved with a different lender later on, you can.
You don't need to choose all the details of your final loan structure at this point, but it's a good idea to find out your different home loan options so when it comes time to fix your final mortgage structure, you know what you want to put in place.
This is a good chance to ask any questions you have about the process and the loans that are available to you.
Step 4: Preparing the pre-approval application
Up until now, none of your information has been submitted to a lender and there's no enquiry marked on your credit file. Once you've selected the lender for your pre-approval, your mortgage broker will prepare the application for you.
Presenting your application professionally, a broker will make sure that the submission contains all the information the lender needs to make a decision and give you a pre-approval for your loan amount. The broker will include a 'letter of explanation' where there's a legitimate reason for any credit problems you may have had too.
Step 5: Lender Assessment
The lender assesses the application. This usually takes a few days. They'll come back to your broker with an answer on your pre-approval, and your mortgage broker will contact you as soon as they find out.
Step 6: Attend Real Estate Inspections
Once you have been pre-approved, you can start looking for your home. If you've got your deposit ready, you can bid at auction or make an offer at a private sale too.
A pre-approval will usually last for 3-6 months. If you don't find your home within this time, its worth asking if you can have the pre-approval extended. It's also a good chance to see if there's a more competitive loan available on market before you commit.
Not a guarantee of loan settlement
Having a pre-approval in place is not a guarantee that the bank will lend you the exact maximum amount that you've been approved for.
The final answer will depend on an evaluation of the property that you want to buy.
Once you've found the property, the bank will complete a valuation, and if you are borrowing with Lender's Mortgage Insurance, approval from the insurer.
Are you ready to apply for Pre-Approval?
If you've got a deposit of 5-10% of your purchase price, or you have a family member who can act as guarantor for your home loan, then you are ready to apply for a pre-approval.
If you're ready to get started on buying your first home, it's easy to fill out a pre-approval form and one of our mortgage brokers will call you to start the process!