A pre-approval on your home loan can be a valuable step in the process of purchasing your own home or investment property. This means that you can attend an auction or submit an offer on a property that suits your financial goals with the comfort and knowledge of knowing that you have your finances lined up and ready to go.
Let’s start with the basics
A pre-approval, otherwise known as an Approval in Principle for your home loan, is the estimate of how much you will be able to borrow from that particular lender. This will typically require you to submit your supporting documents, such as payslips, bank statements and identification, as well as the loan application documents, to allow the bank’s credit assessment team to review your details and provide your borrowing estimate.
It’s important to note that some banks don’t offer a pre-approval, and some will simply be system-generated, which means it’s highly unlikely that a credit assessor has seen this. You should ask your bank or your mortgage broker to uncover the process that will take place as a system-generated approval may not be worth the electronic paper that it’s written on.
By having the credit assessor review your file and supporting documents in full, you can have some peace of mind that when you have found your property, it’s unlikely that there will be any hiccups along the road to full unconditional approval. This can be particularly important for Australian expats living and working across the globe, where it may not be as straight-forward an application as someone living in Australia for the assessor. You can check out more about common mistakes Australian expats make with their financing here.
What do I need to know about pre-approvals?
There are a few important facts to be aware of when it comes to obtaining a pre-approval. Firstly, the pre-approval will typically last anywhere from 3 – 6 months, depending on your status and depending on the particular lender. This expiry date is designed to protect the lender as there’s a chance that both your financial situation and property market will have changed within that time frame. You should always ask your lender or mortgage broker how far out the expiry date is and what happens when it expires.
Secondly, it’s important to note that a credit check will typically take place when the bank is reviewing your documents to provide a pre-approval. This will generally leave a note on your credit file to state that an enquiry has been made. While one or two enquiries is not necessarily a negative, you should be wary of seeking too many pre-approvals from too many different lenders as this cause some banks and lenders to question your behaviour.
Third, a pre-approval is not an obligation for you to use that particular lender when you have found your property, nor is it a guarantee that the lender will approve your application once you’ve found the property. This provides both parties with some degree of flexibility when it comes to formally securing financing once the property is found. If your finances change between the time you receive your pre-approval and the time you find your property, these changes would need to be factored in and assessed by the lender. This could include circumstances like taking on a new credit card, changing jobs, a change in your salary or having children. If you are planning on any changes to your financial circumstances between pre-approval and finding a property, speak to your lender or mortgage broker to discuss how this would impact your borrowing capacity.
How do I obtain a pre-approval?
Now that you know the basics of what a pre-approval is and how it can be beneficial for you, let’s explore how you actually go about obtaining this. The first step is to speak to your investment-savvy mortgage broker and discuss which lenders are going to be most suitable given your circumstances and goals. For Australian expats, the treatment of your overseas income can differ significantly between the various lenders when they are conducting their serviceability calculations. Your mortgage broker will provide you with a range of options and can outline their recommendations for you.
Once you and your mortgage broker have identified the right lender for you, they will advise of which supporting documents to provide and the required information. This will cover your current cash flow and overall financial position, as well as general details about your job. Once these details are provided and the loan application documents are complete, your mortgage broker will submit this to the lender.
The bank’s credit assessor will then review your file and request any further supporting information that they require to provide your borrowing capacity and pre-approval. Once all supporting information has been received, the bank will send through their pre-approval and specify the amount that they are comfortable lending you. You’ll then be able to start, or continue, your search for your home or investment property with a great deal more comfort knowing that you have already been through the assessment process and have a comfortable estimate from the lender.
Speak to our team at LoanSuite today to discuss how you can secure your pre-approval.
LoanSuite Pty Ltd is your lending partner for all of your home loan, investment property, business and commercial financing needs. With our wide range of lending solutions, expertise in financial planning and investment strategies, and extensive experience in working with both Australian residents and Australian expats, we are your partners for your lending needs.
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LoanSuite Pty Ltd is an Authorised Credit Representative (Credit Representative Number – 494608) of My Local Broker (Australian Credit License – 481374). Important Disclaimer: Your complete financial situation will need to be assessed before acceptance of any proposal or product.