If you’re a first-time home buyer, you might be wondering what pre-approval actually means and what it involves. How do you get “pre-approved?” and does this mean you’re approved for a mortgage? It’s normal to be uncertain about financial lingo such as this, but it’s important to be aware of what pre-approval actually involves and what it means for you in your home buying process. We’ve compiled a list of the steps involved in the pre-approval process, so that you can be armed with knowledge during your journey.
- Gather the necessary documentation
In order to be pre-approved, you will first need to supply all the necessary financial documentation. You will normally need to provide proof of income, such as tax returns, to demonstrate your ability to meet mortgage repayments. You will also need to provide documentation showing your assets, including bank statements and any investment accounts. Preparing this information in advance will help to ensure your pre-approval process goes smoothly.
- Check your credit score
Being aware of your credit score is always good practice, but it’s paramount when applying for a home loan. Your credit score will impact your likelihood of securing a loan, and will then also help to determine your loan terms and interest rate. Your credit score is readily available, and should be checked frequently.
- Research lenders and loan options
Finding the right loan for you will depend on various factors. You can research lenders yourself, or you can see a mortgage broker for an expert opinion. Mortgage brokers have access to a range of lenders, and can help you to determine which is the best match for you.
- Check property taxes and transfer duty in your state
Depending on where you are purchasing property, you may be liable for land tax and/or transfer duty (also known as stamp duty). It is best to check what property taxes are applicable in your state, so that you can have a realistic budget when making decisions. We’ve published guides on property taxes and transfer duties for Queensland, Victoria, and New South Wales.
- Get pre-approved
Now that you’ve prepared your documentation, researched lenders or found a mortgage broker, and checked your state’s property taxes, you’re ready to seek pre-approval. This process involves submitting the necessary documentation for review. Your financial situation will then be assessed, and the lender will determine if they are willing to lend to you – and how much. You will then receive a pre-approval letter, which will provide insight into how much you can borrow, and other details of your pre-approved loan.
- Check the terms and conditions
Once you’re received your pre-approval letter, ensure that you examine the terms and conditions of your loan. Check the mortgage type, interest rate, duration, and any other conditions listed that must be met before you’re awarded final approval. If you have any questions about your pre-approval conditions, seek professional advice.
- Find your dream home
If you’ve been pre-approved, and are happy with your interest rate and other terms of your loan, you can now begin to search for your dream home or future investment property. In the property market, pre-approved buyers are often viewed more favourably, so you can shop with confidence.
The term pre-approval can be a bit confusing for first-time home buyers, although it is not a guarantee of a loan, it is an important step in the process and will arm you with confidence while shopping for a property. The home loan process involves a fair bit of research and planning, but with the right preparation it doesn’t have to be a daunting endeavour. Our team of expert mortgage brokers can help you with your home loan needs. Book an appointment with one of our Borro brokers today or call the team on 1300 1BORRO.
