Even in a slowing housing market, things can get competitive when you’re looking to buy a home. There will be other people interested in the same properties as you, and the seller often has their pick of potential buyers. That’s why any little advantage is worth exploring to ensure you have the best chance of securing your dream home.
One such advantage is getting home loan pre-approval. While it isn’t a guarantee that your home loan will be funded, it puts you on the front foot in terms of knowing your budget and being able to act quickly if required.
In this article, we discuss what home loan pre-approval is, how it can give you a competitive advantage, and what you need to do to apply.
What is home loan pre-approval?
A home loan pre-approval is a simple way to provide you with greater confidence when you’re house hunting. Quite simply, your lender has done an assessment of your financial situation and has conditionally agreed to lend you a certain amount of money to buy a property. This gives you a much better idea of how much you can borrow with that lender, which in turn helps you search for properties you can afford. The key word here is ‘conditional’ – it’s not a full approval, as this only occurs once a contract of sale is held.
Do you need home loan pre-approval?
While you can still apply for a home loan without pre-approval, it does give first homebuyers a good indication of how much they can borrow. It can also help you avoid the disappointment of signing a contract on your dream house, only to discover that you can’t borrow enough to purchase it.
What are the benefits of home loan pre-approval?
It gives you a clear idea of your budget
As part of the pre-approval process, the lender will help you to figure out how much you can afford to borrow. They’ll explain how much deposit you’ll need and what other costs may apply, such as Lenders Mortgage Insurance. This can give you the confidence to look at properties in your budget range and save you the time and heartache of looking at properties you may not be able to afford.
It allows you to act fast
If you find the property of your dreams, chances are someone else will have spotted it too. If you’re not in a position to act fast, there’s a strong possibility that it’ll already be sold by the time you get to putting in a home loan application. With pre-approval secured, you’ll be in a position to make an offer immediately.
It strengthens your negotiating power
Having a conditional green light from your lender in the form of home loan pre-approval makes a strong statement to a seller. It demonstrates that you’re serious about the purchase and are more likely to be able to access the funds needed for a smooth sale (subject to final approval, of course). This will put you in a stronger position than a potential buyer who hasn’t yet begun the process.
Most of the paperwork is completed upfront
When you find a place you want to make an offer on, the last thing you’ll want to be doing is scrambling around looking for pay slips and the like. With an application for pre-approval, you’ll be asked to supply documentation related to your financial position early in the process. Having said this, under certain circumstances, your lender may still ask additional questions and request updated documents, like your latest payslips and bank statements, before confirming full approval.
Pre-approval opens up the possibility of buying at auction
Unless you’re a cash buyer, having pre-approval for a home loan is vital if you’re buying at auction. Without it, you run the risk of having your bid accepted and then not being able to fulfil the sale if your post-auction loan application isn’t approved. While this is still possible with a pre-approval in place (pre-approval isn’t a guarantee, remember), some lenders assess pre-approvals differently for customers intending to buy at auction to minimise the chances of this happening. For this reason and others, it’s worth speaking to your lender if you’re planning on buying at auction.
It’s obligation-free
Applying for a home loan pre-approval usually doesn’t cost anything (most lenders, including Great Southern Bank, don’t charge for it) and you’re never under any obligation to take out the loan. So if your circumstances change or you change your mind, you can walk away. Pre-approvals are valid for 90 days, but if you need longer they can easily be renewed. A word of warning, though. Going to lots of different lenders for pre-approval may affect your credit score.
What’s the process for pre-approval of a home loan?
- Decide on a home loan provider or mortgage broker.
- Make an appointment with your chosen lender or broker.
- The lender will ask for certain financial information such as proof of income and any assets/liabilities to determine the deposit you may require and how much you can afford to borrow.
- Submit an application for home loan pre-approval.
- Your chosen lender reviews your application subject to its lending and credit assessment criteria.
- Pre-approval is granted (valid for up to 90 days).
- Find your dream property.
- Make an offer to purchase based on pre-approved loan amount.
- If the offer is accepted, complete full home loan application.
- Full approval granted.
- Loan funded.
It’s worth bearing in mind that this example assumes that the applicant submits a pre-approval and then a full home loan application, both of which meet the home loan provider’s lending and credit assessment criteria. Not all pre-approval applications will be successful, and the same goes for full applications. However, a Home Loan Specialist or broker will be able to assist you in these cases to understand why an application has been declined and what steps you can take to help make your property dreams a reality.
Ready to apply for a home loan pre-approval online?
If you’re ready to apply for a home loan pre-approval online, click here. Alternatively, if you’d prefer to connect with one of our Home Loan Specialists first, you can do so here.
FAQs
Can I get pre-approved for a home loan?
Anyone can and, in our opinion, should apply for home loan pre-approval. That’s not to say it’ll automatically be approved though.
How long does home loan pre-approval take?
This depends on your individual circumstances and the lender or broker you use. Some pre-approvals only take a few hours, others can take weeks. Your lender or broker should be able to give you a rough idea.
Does a home loan pre-approval affect my credit score?
Home loan pre-approval is a form of credit enquiry, which means it will be recorded on your credit report. However, this will only negatively impact your credit score if you make multiple pre-approval applications with different lenders within a short space of time.
How long do home loan pre-approvals last?
Pre-approvals are valid for 90 days, but if you need longer they can easily be renewed.
What do you need for a home loan pre-approval?
In order to apply for a home loan pre-approval, you will need proof of identity (e.g. passport), proof of income and employment (e.g. payslips), and proof of any assets (e.g. vehicles, other property) and debts (e.g. personal loans, credit cards) you might have.
Important Information
Great Southern Bank, a business name of Credit Union Australia Ltd ABN 44 087 650 959, AFSL and Australian Credit Licence Number 238317. Conditions, fees and charges apply. This is general information and does not take into account your objectives, financial situation or needs. Consider the appropriateness of the information, including the Terms and Conditions (T&Cs) booklet, before acting on it. The Financial Claims Scheme may apply to this product; refer to the T&Cs for more information.