Explainer: Home loan pre-approval

For those getting ready to stride into the world of home ownership, the uncertainties of pre-approval can cast a shadow of doubt over an otherwise exciting time. When is it necessary? How long does it last? And what does it involve, exactly?

Pre-approval is a lender’s assessment of your likelihood of being approved for an otherwise suitable loan. The appraisal is made on the basis of your ability to service a loan by looking into your living expenses and liabilities, your credit history, your employment circumstances and how often you have moved home or employment in the recent past.

Pre-approval is helpful for those who want to know how much they can borrow before attending open homes, and can be reassuring for new borrowers.

Pre-approvals are usually valid for up to 90 days but, depending on the lender, may be renewed to allow more time to find a property.

It is very important to note that a pre-approval is not a guaranteed loan. It is your potential lender’s way of signalling how much they expect to lend you. This may change on your official application.

For example, a change in lender policy, or a change in your circumstances, from the time of pre-approval to the time of your official application may cause a lender to decline your loan application.

If you can avoid it, don't seek new finance through another credit card or car lease, or any other debt that may affect your income and serviceability after you have received pre-approval.

Your pre-approval will also usually be conditional on a property valuation. If your lender does not deem the property a marketable asset, they may not approve a loan.

Potential borrowers need to be wary of the changes that can affect their ability to take out a loan, regardless of pre-approval figures, to ensure they don’t overcommit without a guaranteed source of funding.

While pre-approval is not a guarantee your home loan application will be approved, it is a very useful tool for anyone looking for a property.

Speak to us about pre-approval before you lock in your Saturday open home schedule.

Source: MFAA

Reproduced with the permission of the Mortgage and Finance Association of Australia (MFAA)

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