You’ve been saving like crazy and now you’re ready to start house-hunting. While it’s tempting to jump straight in, spending your weekends at open homes and bidding at auctions, having pre-approval will put you in a far better negotiating position when you discover your dream home.
Getting pre-approval tells sellers and agents that you’re serious about buying, and speeds up the process when you find a house you like. Making an offer on a house without pre-approval could leave you in a sticky situation should lenders decline your finance application. Besides, Having a mortgage broker working for you means you only need to complete one application – they’ll do the rest of the hard slog for you.
The rundown on pre-approval
Having pre-approval gives borrowers a head start towards getting a mortgage. Pre-approval is a preliminary indication that you could borrow up to a certain amount if your home loan application meets your lender’s requirements. While it’s not a guarantee, it means you can bid with confidence at auctions, or make an offer knowing that your lender will most likely approve your home loan.
Here’s what you need to know:
- Interest rate changes can affect your pre-approval: if interest rates increase, the maximum amount that you’re able to borrow can decrease.
- Pre-approvals expire: generally, pre-approvals are valid for three to six months because your financial circumstances and the property market can change over that period.
- Certain property conditions will need to be met: your pre-approval will be subject to a property assessment, and some property types may not be acceptable – something you’ll need to check with your lender.
- Applications go on your credit history: Applying for pre-approval and being declined by several lenders in a short space of time can damage your credit score.
- If your circumstances change, you may not be approved: things like changing jobs or taking on new debt will mean lenders will need to reassess your pre-approval application – which may mean you’re no longer approved or you can’t borrow quite as much.
What you need for pre-approval of a home loan
Proof of income and expenses
Borrowing a six-figure mortgage is a big deal and lenders need to know that you can meet regular repayments. They’ll be looking for a stable employment record or if you’re self-employed, that you keep good financial records. Your expenses will help them determine what you have leftover – and therefore what you can comfortably afford to repay.
Proof of assets and debts
Lenders will need to see bank statements and financial records that detail your assets and liabilities – including the deposit that you’ve saved.
Having the right identification and any additional paperwork ready means that lenders can assess your pre-approval application quickly – and you can move fast when you find a house that you like.
A good credit history
Lenders use credit checks to analyse your financial behaviour – so keeping your credit score clear of defaults and late payments will help your application.
Tips for improving your pre-approval chances
To securing a yes from your lender, there are a few things you can do:
- Bigger is better. The bigger your deposit, the better your chances. A history of good savings will show you’re able to manage your income well.
- Keep it clean. Keep your credit clean by settling any outstanding defaults before you apply for pre-approval.
- Get rid of debt. The less debt you have, the better. Pay any credit cards in full each month, and work to reduce short-term debt as much as you can. The more debt you have, the higher your monthly expenses, and the less you’ll be able to borrow.
- Keep tidy books. When assessing your pre-approval loan application, lenders will go through your bank statements with a fine-tooth comb to see how well (or not) you manage your accounts. Keep within your arranged facilities with your bank, or you could get a small overdraft to stop any unauthorised overspending.
- Leftovers are good. To show lenders that you’re able to live within your means, try to leave a small surplus of income each month once you’ve paid all your expenses. Like your deposit, the bigger the surplus, the better!
- Be ready to address any issues. Get familiar with your financial situation and be ready to address any issues before submitting your application.
- Prepare a budget. Prove that you can manage the financial responsibility of being a homeowner including mortgage repayments, insurance, and rates.
Avoid the pitfalls – get the right help
When applying for pre-approval, you’ll provide relevant information to your lender, so all the hard work is done upfront, speeding the process when it comes time to buy. But not all lenders have the same application criteria – and while one bank may decline your pre-approval, another lender may approve it.
Consulting with a mortgage broker is essential – and can save a lot of heartache later. Having a mortgage broker working for you means you only need to complete one application – they’ll do the rest of the hard slog for you. They’ll ensure your home loan is structured so you can become mortgage-free as quickly as possible – and minimise any risks that are involved.
Let’s get you pre-approved! Get in touch with the team at Global Finance today.
**These are general guidelines and are by no means a reflection of bank or lending policies