Getting pre-approved will make your loan application easier.

Pre-Approval Tips to Secure Your Home Loan

The home loan application process is often lengthy. But it isn’t that complicated. It typically involves gathering and lodging the required documents to the lender you prefer. The lender will then make a preliminary assessment and may ask for additional documents. Once everything is taken care of, the lender will perform a property valuation before approving or rejecting the loan.

If your application is approved, you will receive an offer from the lender. You get the funds you need, and you will need to pay the money you have borrowed, along with the interest and other fees.

Easy, right? But you can make things even simpler with home loan pre-approval.

Getting your home loan pre-approved shows sellers you are serious and financially capable.


What is Pre-Approval and Why Do You Need It?

Making an offer on a property without getting pre-approved is like going to the supermarket and filling your trolley even though you don’t have money to pay for the items. Going to a bank or lender and applying for a loan does not guarantee that you will get approved. When your application is declined, you are left in a sticky situation, especially after you have already made an offer.

Luckily, it’s easy to secure pre-approval, especially when you have a mortgage broker working with you. But what is home loan pre-approval? When you’re pre-approved for a loan, it serves as an indication that you have a big chance of getting approved for finance if nothing changes. You get the confidence to bid at auctions or make an offer.

When you send your application, the lender will assess your information, such as your living expenses, debts or liabilities, and credit history. Based on those details, the lender will decide on certain aspects, including the amount you can borrow and whether or not you have the ability to repay the debt.

Getting pre-approved is like acquiring a shortcut towards full approval. Most of the time, you do not have to go through the whole borrowing process. When you find a house that you would like to purchase and have already been pre-approved, you may need to provide updated copies of your bank statements and payslips.

Here are other reasons why you should aim to get pre-approved:

  1. You will immediately know the maximum loan amount you’re allowed to borrow. It helps that you can determine the budget that you can work with. That way, you do not waste time and then get disappointed because you find out that you cannot afford the property.
  2. In a competitive market, having a written pre-approval puts you in a stronger position. Sellers will take your offer more seriously because they know you have the funds to support the potential purchase.
  3. In addition to the point above, you can also increase your negotiation power with a pre-approval. Because you have the upper hand compared with the other buyers, you may be able to negotiate a lower price with a motivated seller.

Before trying to get a pre-approval, make sure that you have sorted your finances first. Thus, your credit report is the most important tool for receiving pre-approval. This particular document includes your past debts, other loan applications, and late payments made.

Before applying, it's best to do your research and ask for professional help if possible.


How to Apply for a Pre-Approval

The process of getting pre-approved is pretty much the same as applying for the actual home loan. You send your details and required documents to the lender you prefer. This lender will then check your finances, including your credit history and credit score.

After reviewing your current finances, such as your income, household expenses, assets, and liabilities, you can figure out:

  • How much you can afford to borrow
  • The monthly repayments you can comfortably afford based on your expenses and other payments

Make sure that you research the home loan offers available, including their features and types. Home loans are typically secured with either fixed or variable interest rates. Others have additional features, such as a redraw facility. List the lenders and loans you would like to apply for and narrow it down to one or two.

Finally, you can send a pre-approval application online or over the phone. The application typically requires your basic information, such as your name, age, and exact location.

Some lenders do not offer conditional approval, however. If you get a call or letter that you are pre-approved, it means the lender deems you eligible for the home loan up to a certain amount. Once pre-approved, you may go to open houses with a firm grasp of how much you can spend. The knowledge of the price range you can consider realistically can save you time and effort. That’s because you will only visit open houses and make offers to properties for sale that you know you can pay for.


Things to Remember about Home Loan Pre-Approvals

A common misconception about home loan pre-approvals is that they are a guarantee of finance. They are not. Conditional approvals simply confirm that you meet the specific criteria of the lender. Despite that, your application is still subject to conditions, which can change depending on certain circumstances.

A pre-approval can be one of the following:

  1. System Generated: As the name suggests, this type of pre-approval is merely performed by the system and not the lending institution’s credit experts.
  2. Full Assessment: The lender assesses your information and may even get a credit check from a credit agency. You may also get a call to learn more about your financial situation. This type of pre-approval can take days, but it saves more time when you’re on your way to seek the final loan approval.

Even when you are pre-approved, the lender still has the right to reject your application. It usually happens if your financial or personal situation changes. For example, you lose or change your job or perhaps went from being a full-time employee to a part-timer. That’s why it is a good idea to wait until your circumstances are steady before you apply for pre-approval.

Other things to be aware of are:

  • Pre-approvals do not last a lifetime. They expire within a few months. Some lenders only offer pre-approvals for three months, while others may last for the whole year. Still, you will be required to provide updates about your finances. It also makes sense to apply for pre-approval when you’re ready to purchase within the next few months.
  • Even if you have a good credit background, you could get rejected because of the property you would like to buy. Some lenders do not prefer lending for purchases involving high-rise apartments, homes near big power lines, places with unpaved roads, and very rundown properties.
  • Be wary of pre-approvals because they can affect your credit score. Lenders will perform a credit check, which will stay on your file. The more applications you send out, the bigger the reduction on your score will be. And the lower your credit score is, the less chance of approval you get because lenders will view you as a high-risk borrower.

Home loan pre-approvals are helpful, whether you are a first home buyer or an experienced one. However, as a consumer, you should be aware that they are not foolproof. It means that there is still a chance that you will not be approved even after pre-approval. Furthermore, you could get pre-approved, but the lender will choose to deny the loan.

It’s always useful to get the right help when securing a home loan. The application process may be simple, but it can get confusing. You could get denied without understanding the reason why.

Quantum Finance is the mortgage broker Perth trusts to provide expert assistance during this time. We have inside knowledge of Australian lenders, and we fully comprehend how the approval process works. Contact our mortgage brokers today so we can start your home loan application process right away.

Quantum Finance office.

Gavin Harrigan

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With over 18 years in the finance industry, Gavin's wealth of knowledge relating to home loans is matched by few in Australia. This knowledge is reflected in his dozens of awards, including being inducted into the Plan Australia Hall of Fame. His qualifications include a Bachelor of Commerce from Curtin University for Applied Finance and Commercial Law and a Diploma of Finance and Mortgage Broking Management from AAMC Training Group.

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