A key step in the home loan application process is getting pre-approved for your desired principal. Whether you are buying your first home, investment property or commercial property, getting a lenders pre-approval means you can commence evaluating different property options on the market with the knowledge that when you find the right one that you will be able to move to make an offer quickly.
During the pre-approval process, banks and lenders will look at your credit records, income and expenses to determine the amount of money they are willing to lend you and at what interest rate. Getting a pre-approval is more or less a commitment from a lender to say that you are able to borrow up to a certain amount. Pre-approval however is not an offer from the bank, rather an acknowledgement that if you make a formal application and the details you have provided are verified, that you will be approved. A pre-approval notice or letter will also add credibility to any offer you make on a property and will help real estate agents and owners understand that you are serious about buying which will definitely help with negotiations.
Step 1. Check the Status of Your Credit
Before applying for pre-approval you should take the time to look into your own credit score and situation. Firstly, a quick check of your score will let you know if there is anything you should be concerned about when it comes time to apply. If you have any defaults or negative marks against your name, you should do everything you can to repair these issues, especially if there are any errors present. This review will also allow you to see all credit facilities that you currently have open, and potentially help decide whether these can be consolidated, eliminated or rolled into your home loan.
Step 2. Prepare Your Documentation
Generally speaking, banks and lenders will want you to provide enough information for them to make a fair and reasonable assessment of your financial position. This will include proof of identification, (usually 100 points) as well as proof of income, expenses and cash flow. If you already bank with the lender you are applying for, this can be easier than going to a institution that doesn’t have any visibility of you as a customer, however you will still need to provide the required document and sign off that it is true and correct.
The information and documentation you will need to gather includes:
- Proof of Income – Payslips, Tax Returns or Business Income Statement
- Current Open Credit Facilities – List of the credit cards, store cards and personal loans that you have.
- Asset Information – If you have significant assets you are wanting to be considered in the application you may need to provide proof of ownership. Cars, properties and other items of high value can go a long way to helping you get approved.
- Monthly expenses – be ready to show where your money goes each month. Banks and lenders have a good understanding of the average cost of living, so be sure that you’re honest and realistic in your expense declarations.
- Proof of Identity – Make sure that you can produce 100 points of identification, that has the correct address and legal names.
Step 3. Submit Your Application or Speak to an Expert
The final step in the pre-approval application process is to actually submit your application. Getting the help of a qualified and experienced mortgage broker at this point can add a lot of value to your application. As experts in the home loan application process, they will be able to help you gather relevant information that will help strengthen your case and help you understand which banks, lenders and products are suited to your requirements.
Step 4. Receiving your Pre-Approval Notification
Getting pre-approval can take anywhere from 24 hours up to a couple of weeks, depending on the strength and complexity of your application. It is also important to note that pre-approvals usually have a specific time limit or expiry associated with them. Most cases, a pre-approval will be valid for around 90 days, which gives you time to assess the market and find a property for your needs. Make sure that when you receive your pre-approval that you take note of the expiry, and contact your lender if you are approaching the date. Some lenders will offer pre-approval extensions if your financial situation remains the same, which can minimise the time and administrative effort of keeping your pre-approval valid.
If you would like to find out more about the pre-approval process, have questions about your application or would like advice on anything to do with the home loan application process, reach out to our trusted and experienced team for an obligation free and confidential discussion.
