Pre Approval For A Home Loan
Looking to buy a property? Obtaining a Pre Approval is a must to ensure you know how much you can borrow.
Know Your Pre Approval Limit
Obtaining a Pre Approval is not just about getting your finances in order. It’s also about knowing what you can borrow. A Pre Approval will set out the maximum amount you can afford to obtain and still maintain your lifestyle. Or, as is normally the case, modify your lifestyle to suit the fact you have a mortgage.
What Happens When Applying For A Pre Approval?
The process taken to obtain a Pre Approval is exactly the same as when applying for a formal approval. With a Pre Approval, we will still need to collect all the paperwork you would normally provide. We need to provide everything to the lenders that they need to verify your ability to not only obtain a loan, but also to maintain the loan. The lender will look at things like your income and how much you earn. What other loans or credit cards you have and how good your repayment history has been. (Remember that expenditure on credit cards are based on limit, not balance.) Do you have many little loans that indicate an inability to handle your finances well. You may want to consider a debt consolidation loan to wrap everything into one easy to manage debt. Maybe reduce or close credit card or store cards you hold. The new favourite is ‘AfterPay’. Although handy for spreading out repayments, these are NOT good for your credit file. What is your savings history like? Have you shown an ability to save money for a deposit? If you;’ re renting, saving may be hard. However the lenders will still want you to save. This will show how reliable you are.
You Need to Be Reliable
Another factor when applying for a Pre Approval is employment and residential stability. Staying in one residence for an extended period of time shows you are settled. Longer term employment shows you are committed to stability and earning a good income. It’s certainly not bad to change employment, however most lenders will want to see a minimum of six months in your current role (there can be exceptions to this, but this is the general rule). If you change the type of work you do, this will require more stability. Changing employers but doing the same role will sometimes allow flexibility from lenders. As long as you are not doing it too often.
What Do You Need For A Pre Approval
There is a lot of paperwork required when applying for a Pre Approval. The following is a general run down on bank requirements;
You will need to provide 2 forms of identification, with one form being photo ID. Sometimes this is not possible, so there are options we can discuss with you.
PAYG- 2 pay slips and your PAYG Group Certificates from the last financial year are required. It doesn’t matter if you have changed employers, the lenders will still want to see how much you earned last year. They want to make sure you are increasing your income potential if you have changed employers.
Self-employed- lenders want to make sure you have stability in your income. You will need to provide 2 years tax returns for yourself along with your ATO Notice of Assessments for the 2 years. You may also trade under a different name than just yourself. Then there would also be separate financials provided by your accountant. If you operate with a private company, we will also need to supply tax returns for the company. If you haven’t been self employed for two years, or your latest returns are not available, don’t despair, there are options. Click here to read our Self Employed page on this.
Depending on the lender, some will require six months history, some only three months history. Therefore, we need to provide bank issued statements covering the required period. These must be no more than 30 days old when the application is lodged. Should your statement be older than this, an internet print out can be used for the latest transactions.. However, this must have a daily balance and the account number on it. Screen shots are generally NOT accepted by lenders.
Credit Card history – You will need to provide the latest 3 months worth of credit card statements. If you need to consolidate debts prior to an application and close some cards, that’s okay. We’ll need to provide a letter showing the account is paid out and closed. (Not just paid out. Not just closed. BOTH)
Lenders will want to see the latest 3 months worth of transactions on ALL savings or everyday transactions accounts that you hold. This provides them with a great snap shot of your spending history. Lenders will review your history in great detail. Any recurring gambling or betting history will raise a red flag. As will payments to ‘Payday’ lenders.
This is not something we provide, but something the lenders will check on. If you have had issues with your credit in the past, this will complicate things, but again, not the end of the world. Click here to view our page on “Bad Credit Home Loans”. Also, don’t keep applying for Pre Approval or other forms of loans. Having multiple enquiries on your credit file is also bad for future lenders. They will worry about your ability to manage debt.
What Are The Costs Of A Pre Approval?
There should be no charge to apply for a Pre Approval. The lenders won’t charge. Neither should your mortgage broker. Some things you may want to do is check out your borrowing power before meeting. Also, working out how much it will cost you to buy a property. Another fantastic resource is a budget planner. Before purchasing, you need to know where your money is going. Doing a budget will show you want you need to cut down on and what services you can cancel.
When meeting with a mortgage broker, be prepared. Do your research and know what you can afford. Make it as easy on yourself as you can. Know your finances. Don’t stress. As a First Home Buyer, things may appear daunting. We have done this a thousand times and are the experts to help you through.
The Home Loan Comparison Co. compares home loans from a much wider variety of banks than most people have time to consider, and we find the loan that suits your goals.
We are experienced, knowledgeable and dedicated to building ongoing relationships to keep on providing personal and valuable service that is rarely experienced when dealing with the banks.