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Last Updated on 14 December 2018

Home Loan Pre-Approval: What Is It, and How Can You Get it Quickly


Home loan pre-approval might seem like just another hoop to jump through on the way to home ownership, but it can be an important step. Though pre-approval is not required, it can speed up the process and help you nab the home of your dreams.

This guide will explain what pre-approval is, and how you can get it as quickly as possible.

 

Key Points
  • Lenders grant home loan pre-approval to indicate that a borrower is qualified to apply for a certain loan amount.
  • Pre-approval can help you focus your property hunt, and it also shows buyers that you are serious when you make an offer.
  • To gain pre-approval as quickly as possible, do your homework on the property market, establish a rough budget, and make sure your documents are in order. A mortgage broker can help speed up the process.

What is Pre-Approval?

Pre-approval, sometimes called conditional approval, is the key to establishing how much you can afford to borrow. Lenders grant pre-approval based on your current financial situation, and it is usually valid for 90 days to 6 months.

When a lender grants pre-approval, they are advising that a borrower is qualified to apply for a loan up to the stated limit. Pre-approval is not an official loan.

When you are ready to apply for your loan, you are not obligated to use the same lender who gave you pre-approval.

After you submit an application for pre-approval, the lender will likely run a credit check on you to establish whether you are eligible for the loan. The pre-approval credit check does show up on your credit report, so it’s better not to apply for too many pre-approvals in a short period of time.

While it doesn’t technically hurt your credit, lenders may start to question why you are requesting so many pre-approvals and whether or not you are serious about taking out a mortgage.

Pre-approval is part of getting all your ducks in a row before you start making offers.

Advantages of Pre-Approval

If pre-approval isn’t required, why should you get it? Pre-approval can help structure your house search, plus it shows buyers that you’re serious. Here are some advantages of pre-approval.

Focus Your Search

Pre-approval lets you know how much you can afford to pay, so you can fine-tune your search. Eliminate properties that are outside of your price range and focus on the ones that are.

Show Buyers You Mean Business

With a pre-approval letter from a lender, you show buyers you are serious about a purchase. You also have proof that lenders are willing to give you a loan that covers the purchase price.

Having pre-approval puts you a step above the competition because it gives the buyer confidence about you as a buyer.

Make an Offer Quickly

Ready to make an offer? With pre-approval you don’t have to wait. You can move quickly when you see a property you like, rather than risking someone else getting there first.

Streamline the Process

With pre-approval, you know that you’re eligible for the loan amount. This reduces the chance of unexpected surprises that can lead to you missing out on the home.

Bid at Auction

If you’re looking at auctioned properties, pre-approval provides the guideline for your bidding. You’ll be less likely to overbid if you know that you’re not going to be approved for that loan amount.

Who is Likely to Get Pre-Approval?

Pre-approval is based on your financial situation and the strength of your application. An applicant who can prove that they earn a steady income and can meet repayments will be more likely to be pre-approved.

Applicants with a high credit score are also more likely to be pre-approved, since this provides much of the basis for a lender’s decision.

To get pre-approval, you’ll need to submit a complete application that contains all of the information a lender needs. If you can do that, you’re more likely to be pre-approved.

What Documents Do You Need for Pre-Approval?

The exact documents you need for pre-approval will vary by lender, but in general you should prepare the following:

  • Price range and location of the type of properties you’re interested in. The lender will factor these details in when making a decision.
  • Proof of deposit. If you are borrowing less than 80% of the property’s value, you have a stronger application.
  • Tight doors and windows that are hard to open and close? This might be a sign of termites or foundation issues.
  • Proof of income. This may include payslips, tax returns, and paid invoices.
  • Proof of debts. The lender needs to know if you currently hold any other loans.
  • Proof of ID, such as your passport or drivers licence.

Be prepared with evidence of the above points and it will greatly assist your application.

How Long Does it Take to Get Pre-Approval?

Pre-approval can happen as quickly as one day, or it can take up to a week or longer. The length of time depends on the lender and the strength of your application.

A complete, detailed application will help the lender make their decision more quickly. If you have a complicated credit history or an incomplete application, there may be delays to your pre-approval.

Since pre-approvals do expire, it’s important to time your application carefully. If you apply for pre-approval well before you are prepared to make offers, you may have to re-apply.

How to Get Pre-Approved Quickly

There are things you can do to speed up the pre-approval process.

Be Realistic

Pre-approval can happen as quickly as one day, or it can take up to a week or longer. The length of time depends on the lender and the strength of your application.

A complete, detailed application will help the lender make their decision more quickly. If you have a complicated credit history or an incomplete application, there may be delays to your pre-approval.

Since pre-approvals do expire, it’s important to time your application carefully. If you apply for pre-approval well before you are prepared to make offers, you may have to re-apply.

Do your homework

Check out properties in your preferred area to get an idea of what you can get for different budget levels. Your location and sample properties should be a rough match for your budget. This may mean attending open houses before you are ready to buy.

Gather your documents

For some people, gathering documents may be a quick process, but for others it may take some time. If you get your paperwork together early, your lender has the evidence they need to give pre-approval.

Use a mortgage broker

Not sure what documents you need or whether you’ve provided enough proof of income? A mortgage broker can help you with that. In the next section, we’ll look at the role of a mortgage broker in more detail.

How a Mortgage Broker Can Help With Pre-Approval

A mortgage broker is a home loan professional who can help you obtain pre-approval quickly. A broker can tell you which documents are required, and make sure your application is complete before handing it to the lender.

Brokers can also help you identify which lenders are a good fit for your financial situation, which can improve your chances of getting pre-approval in a short period of time.

Mortgage brokers are familiar with the pre-approval processes for multiple lenders, so they may be aware of things you aren’t. Often, you do not have to pay for a mortgage broker’s services.

Does Pre-Approval Guarantee a Loan?

Pre-approval cannot guarantee your loan. There are some situations where changing circumstances can affect your borrowing capacity, such as:

  • Changes to your income
  • Changes to the RBA interest rate
  • Changes to the property you are hoping to buy
  • Poor valuation of the property you are interested in

If you do experience a change in circumstances, a mortgage broker can help you manage the process. This does not mean you won’t be able to get a loan, it but you will likely need to provide some more information.

For advice on your personal situation or to apply for pre-approval, x from one of our experienced mortgage brokers.


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