4 min read | 4 June 2021
Pre-approval for a home loan comes under various names including conditional approval and approval in principle, but essentially it means your lender has conditionally approved you to borrow up to a specified amount to purchase a property.
It is as close as you will come to a guarantee of funds before the home loan application process is finalised, and it gives you relative peace of mind when it comes to making an offer on a property or bidding at auction. It will also speed up the home loan process when your offer has been accepted. It is basically an indication from a lender that they are willing to approve your loan when you lodge a full application.
You may have to do a similar amount of legwork for both, including providing supporting documents like payslips and evidence of your deposit. However, one holds a bit more weight than the other.
A system generated pre-approval may take a matter of hours, or sometimes on the spot, but will come with more conditions. In many cases, a credit assessor hasn’t checked your bureau score, reviewed your documents or done a final property valuation. Because it is system generated, there is more risk something can go wrong at the full application stage.
A full assessment pre-approval takes longer but is more thorough. It involves your lender’s credit department undertaking a comprehensive assessment including credit and documentation checks, and may require some to’ing and fro’ing as they clarify the finer details of your financial situation. On the plus side, this makes it the more reliable of the two types, with less likelihood something will go wrong in the final stages of your mortgage application.
While applying for a pre-approval is beneficial for a whole host of reasons, you should be careful not to apply for too many as it will affect your credit score, and they do expire – lasting only three to six months. It is best to apply for one as you get to the pointy end of your house hunting, not when you are just loosely thinking about whether you might buy a home in the future.
It is also worth noting that pre-approval may not make it to full approval where your circumstances change between the initial application and your final mortgage application. That could include changing jobs (or going part-time); having a baby; a new credit card (or fibbing about a card you have, but said you didn’t) and dipping into your deposit. Even a change in interest rates (upwards) may impact your pre-approval.
Some lenders have restrictions on the type of property they will pre-approve you for, so check with your lender if there are restrictions. Some won’t lend on apartments under a certain size, while others won’t lend on a property over a specific land size. Some have restrictions on the suburbs they will lend to, while some restrict lending on fixer-upper homes that require a lot of work.
On the plus side, those with pre-approvals are often preferred by sellers, who generally want to get a sale over the line quickly, as there is less likelihood something with fall-over with the sale process than a buyer who has no reliable indication of whether they will secure finance.
Pre-approval also gives buyers the security of knowing exactly what their budget is, so you have some comfort while bidding at auction, or knowing whether you can afford your dream home.
To apply for a pre-approval for a home loan you first need to decide what sort of loan you are after – Fixed or Variable, Principal and Interest; Interest only; Owner Occupier or Investment Loan, and work out which is the right one for you.
Check what restrictions lenders may have on their loans (in terms of property limitations), and of course, check and compare interest rates. At Athena, we have some of the best red-hot rates in the market – check them out here!
You can also check out Athena’s online calculator to get an idea of how much you could save by moving across.
Get all your financial information together, including payslips, expenses, credit card and other personal loan information, so the process is smoother, and then get in touch with your lender online, at a branch or by phone. If your preferred lender doesn’t take much interest in you, keep in mind they will take even less once you are a customer, so be sure to approach a lender who puts you first. At Athena, we want to make your life easier, and we want you to pay off your home loan sooner with Aussie first home loan features like Athena AcceleRATES and our Automatic Rate Match.