What is the pre-approval process?

The pre-approval process, often referred to as conditional approval, is an initial step in the home buying journey where a lender evaluates your financial situation to estimate how much they might be willing to lend you. This process helps you understand your borrowing capacity before you commit to a property purchase. Here’s a general overview of how it works: 1. **Application Submission**: You submit an application to a lender, providing detailed information about your income, debts, assets, and employment. This can often be done online, over the phone, or in person with a mortgage broker. 2. **Documentation**: You'll need to provide various documents to support your application. This typically includes proof of income (like payslips or tax returns), identification documents, and information on existing debts and assets. 3. **Credit Check**: Most lenders will conduct a credit check to assess your credit history and score, which is a crucial factor in determining your eligibility for a loan. 4. **Assessment**: The lender assesses your financial situation, considering your income, expenses and debts to evaluate how much they might be willing to lend you. 5. **Pre-approval Issuance**: If successful, the lender will issue a pre-approval letter, which outlines the conditional approval of your loan up to a certain amount. It's important to note that this is not a guarantee of final loan approval, as that typically requires a property valuation and further checks. 6. **Validity Period**: Pre-approval is usually valid for a specific period, often 3 to 6 months, during which you can house hunt with a clearer idea of your budget. Keep in mind that you’ll need to apply for full approval once you find a property. 7. **Conditions**: Pre-approvals come with conditions, such as the need for a satisfactory property valuation or final verification of your financial situation. It’s crucial to understand these conditions, as failure to meet them can result in the withdrawal of the pre-approval. Getting pre-approved can be a beneficial step, providing you with a clearer budget and making you a more attractive buyer to sellers. However, it's also important to be aware that multiple pre-approval applications can impact your credit score, so it's wise to consider your options carefully and possibly consult with a mortgage broker to navigate the process efficiently.

Pre-approval gives you the assurance to start looking for a house in the middle of your application. Knowing how much you can borrow can help you to set a maximum budget for your property purchase. The term “pre-approvals” might be called differently by different lenders. Some lenders call it “conditional approvals”, “indicative approvals”, or “approvals in principle”. The process for getting a pre-approval is similar to when you apply for a home loan application. The only difference is that you haven’t owned the property yet, and your home loan is only conditionally approved subject to a property valuation. Generally, a pre-approval lasts about 3 months, which gives you sufficient time to find a home. If you haven’t found a property within 3 month, you can ask for extension on your pre-approval by providing updated payslips to show your income has been stable. Complete and sign the home loan application form. Provide proof of income, savings, and debts, including those from credit cards and other loans. After the lender assesses your application and all within the lending guideline, the lender will give you a written pre-approval. Although it’s not a formal or unconditional approval, a pre-approval gives you an accurate estimate of how much you can borrow. This is very important so you can budget your maximum limit to pay for a property. It can be risky to go into a property auction without knowing your maximum borrowing limit and over committing yourself on a property you cannot get approved for a loan. Some lenders offer on the spot approvals either online or in branches without any supporting documents. It can talk as quick as 10 minutes and you get a print out of your conditional approval subject to all documents to be supplied and verified when you are ready to apply. It’s only an indication from a lender that they are willing to approve your loan when you lodge a full application with no obligation to formally approve your loan when you find a property if the lender is unable to verify your incomes. Once you have found a property to purchase, your mortgage broker or lender will arrange a property valuer to inspect the property. If you’re borrowing over 80% of the property value, you may require Lenders Mortgage Insurance (LMI) approval as well before the lender issues an unconditional approval.