- What is home loan pre-approval, and what are the benefits?
- Which lenders offer pre-approval, and how to apply for it.
Home loan pre-approval is not a necessity, but it has some impressive benefits for those who are currently house hunting.
If you have an idea of the amount you can borrow from a lender, it can allow you to budget effectively and negotiate a price.
It is also helpful when selecting the property and neighbourhood you can comfortably afford. Additionally, If you can get written confirmation of your borrowing power, many sellers may take you more seriously.
However, getting pre-approved has some drawbacks, especially if you do so from several lenders.
Read on to find out more about this process.
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What is home loan pre-approval?
Home loan pre-approval happens when a mortgage provider confirms your loan eligibility. They also let you know your estimated borrowing power. This will help you narrow down your options while still in the house hunting stage.
There is often written confirmation to state that you are eligible for a loan. There are conditions associated with this. Not all mortgage providers offer pre-approval. Those that do will often request documentation similar to that required in a formal loan application.
What are the benefits of home loan pre-approval?
One of the benefits is knowing what your buying budget looks like. This helps when you are negotiating with a seller or even when you are at a property auction. You may even become a buyer’s first choice if you can confirm you’ve been pre-approved. A developer may ask for this confirmation if you decide to invest in an off-plan property.
Another benefit is that if you go with the mortgage provider who gave you pre-approval, the unconditional approval process may be much shorter than starting the application from scratch.
Is pre-approval a guarantee that my loan will be approved?
Pre-approval does not guarantee that your home loan application will be approved. Your income status/living situation/expenses, etc., may have changed during the interim. This could impact your eligibility.
If the mortgage provider updates their policies around loan approvals, this could result in a rejection. A significant shift in the market interest rates or a negative valuation of the chosen property can also change the outcome.
Lastly, if you do not have a 20% deposit ready, you may need further approval for lenders mortgage insurance (LMI).
What’s been mentioned so far is not a comprehensive list, and other factors can cause an application to fall through.
Which lenders offer pre-approval?
Some lenders don’t offer pre-approval. However, many banks and reputable mortgage providers will have this facility available. But remember that making too many applications (even just for pre-approval) may adversely affect your credit score.
The following home loan lenders all offer loan pre-approval:
How to apply for pre-approval for a home loan
Firstly, you’ll need to find suitable lenders that offer pre-approval. After that, you can compare your potential borrowing power with these lenders. You can do this by using their online calculators to get a rough estimate.
You should then take a look at your current financial situation. Budget your potential loan repayment amount by taking stock of your income, expenses, debts, and your list of assets. Also, consider what the size of your deposit will be.
You can liaise with the mortgage provider in person, over the phone, or online. Depending on your chosen lender, they will require extensive documentation from you. They will typically need forms of identification, your credit history report, proof of employment, tax returns, and documentation of your financial situation.
The required documents may change if you are self-employed or a contractor. Complete this process and wait for the lenders’ feedback. They may ask you what type of home loan you want or advise your options based on your documentation.
Unloan Variable Home Loan (Owner)
Interest rate (p.a.)
Comp rate^ (p.a.)
- Get a rate discount every year.
- No application fees, no account fees, and no exit fees.
- Borrow up to 80% of your home’s value.
- Refinancing only.
How long does it take to get pre-approved for a home loan?
Pre-approval applications can be made online. This makes the process fast. In some cases, where the loan type is uncomplicated, your finances are in good order, and you have all documentation ready, it can take only hours or less because of automated processes.
Some lenders offer a qualified credit professional to assess your application, in which case a full credit report may be required. Additionally, if you want written proof of your pre-approval, this could take up to several weeks to prepare.
Does home loan pre-approval affect your credit score?
The pre-approval process can impact your credit score because of a hard credit check when a mortgage provider requests your credit file from a credit bureau.
These checks will now become part of your credit file. If too many of these checks appear in a short amount of time, it may appear negative to potential lenders and bring down your score.
You can read about this topic in more detail in our informative article about this and check your credit score free of charge (without affecting your score).
How long does pre-approval last?
Many lenders will allow the pre-approval to last three months, while a few offer six months. The expiry date should be on your letter of confirmation. After the expiry date has rolled around, you'll need to reapply if you haven’t found a property you want to buy.
What is the difference between pre-approval and unconditional approval?
Unconditional approval comes after pre-approval. It requires a separate application process. At this stage, you need to have a property that the lender can formally value. If the valuation goes well, your application may be approved, and the lender will draw up your loan documents.
The verdict on pre-approval
Pre-approval can be beneficial for a variety of reasons. It can help you budget, negotiate a price, and make you look more desirable to sellers. The added peace of mind of knowing that you qualify for a loan can ease some of the burdens of the property buying process.