Confused about home loan pre-approvals?
Pre-Approvals; Making Borrowing and Buying Easier
If you're unsure about home loan pre-approvals, follow these four steps.
Ready to buy a property? You'll need to demonstrate to the seller that you have sufficient funds. For most people, this involves securing a loan, and the first step is obtaining pre-approval. Pre-approval, also known as conditional approval or approval in principle, is an indication from a lender of how much you can borrow. With pre-approval, vendors and agents know you're serious about purchasing. Here's how to proceed:
Gather Your Financial Information
To estimate how much you can borrow and afford, provide a lender with a complete financial overview. This includes your income, assets, and financial obligations such as existing debts and living expenses (like bills, entertainment, food, and car expenses). You'll need evidence of:
- Pay slips and tax returns for your income.
- Title deeds for tangible assets (like buildings and inventory) and portfolio statements for intangible assets (such as copyrights and patents).
- Loan statements for existing loans.
- Credit card statements showing your credit limit.
If you follow a budget and have a regular savings history, consider providing bank statements as proof. Use this information to gauge your borrowing capacity. Several free mortgage tools and calculators are available that can assist.
Meet a Lender or Broker
Schedule an appointment with a lender or mortgage broker. They will provide a checklist of necessary documents, including the evidence mentioned above and required forms of ID. During the meeting, the lender or broker will calculate your borrowing potential. If you wish to proceed, you can complete a pre-approval application form.
Undergo a Credit Check
The lender will arrange for an independent credit bureau to conduct a credit check. This may influence your borrowing capacity and the amount you can borrow.
Receive Conditional Approva
If your credit rating permits, you'll receive a conditional approval certificate from the lender, typically valid for 90 days. This indicates, but doesn't guarantee, the amount you can borrow. Use this figure to determine how much to spend on a property, considering your deposit size. Account for expenses like conveyancing fees and stamp duty. Also, be aware that you may not be able to borrow the full amount indicated by the certificate. Obtaining pre-approval allows you to house hunt with confidence.
What Happens Next
Once you've made an offer on a house, whether at auction or private sale, you'll need to secure full loan approval. Contact your lender or mortgage broker with property details, and they'll guide you through the home loan application process. Securing pre-approval is a crucial step in the home-buying journey.
For assistance in determining your borrowing capacity, contact Paul Jarvis at BFD Finance on 0410 442 951 or paul@bfdfinance.com.