If you’re applying for a home loan for the first time, getting pre-approval can be a great way to boost your confidence as a buyer. It will also give you a better understanding of where you stand with your lender.
While pre-approval on your home loan for first-time buyers is not mandatory, it can be convenient as it helps first home buyers know their budget whilst buying.
What is home loan pre-approval?
Getting pre-approval on your home loan means that the lender has conducted a preliminarily check on your borrowing capacity. They have agreed, in principle, to lend you a certain amount of money towards the purchase of a property. It’s essential to keep in mind that this is not the same as getting final approval on your home loan.
By getting home loan pre-approval, you’ll be able to search for a property using the amount given as your budget. There’s also a chance that your final home loan approval process will move faster.
Does pre-approval guarantee home loan approval?
Getting pre-approval on your home loan doesn’t guarantee that your home loan will be approved. There are a couple of factors that can cause your home loan application to get rejected even after you’ve received pre-approval. These include but aren’t limited to:
- Government regulation changes.
- Changes in your personal life, for example, changing your job or preferred location for the property.
- If the property you’ve selected has a negative valuation, that is when the asking price of the property is more than its actual value considering the location or condition of the property.
- If the property you’ve chosen is not in good condition.
However, if there are no drastic changes in your personal and financial situation, and there are no issues with the property you’ve chosen, the chances of your home loan being approved are high.
How to get pre-approval on your home loan as a first-time buyer?
While many lenders are willing to offer pre-approval on your home loan, the process usually varies. However, almost every lender will first determine if you’re likely to make repayments on time by checking your current financial situation and credit history. So, to get a pre-approval on your home loan, follow these steps:
- Analyse your current income and expenses to determine how much you can comfortably afford to borrow and pay as a deposit.
- Based on this amount, find a suitable lender by comparing the options available to you. You should also ensure that the lender you’ve chosen offers pre-approvals.
- Submit your mortgage documents that prove your identity, income and employment.
- Follow the lender’s pre-approval process, which will usually require you to fill out some application forms.
If you have a steady income and a good credit history, you’ll likely hear back from your lender within a few days. You’ll also likely get a quicker response if you borrow less than 80% of the property value. But, if there are high risks associated with your mortgage application, the lender might take longer to assess it, typically seven days or more.
It’s important to note that the pre-approval on your home loan will likely only be valid for a set period, usually around three to six months. Therefore you should try to find the right property and move the application process to the next stage during this time. Most lenders do offer extensions, but you will have to check if your lender offers it and then apply for it with your lender.
What’s the next step after getting pre-approval on your home loan?
Once you’ve received pre-approval on your home loan as a first-time buyer, you can start your search for a suitable property. You can do this with the confidence to make an offer based on the amount your lender has approved. But, bear in mind that your pre-approval will typically be valid for three to six months, so do your best to find a suitable property within that time frame.
If you’ve already found a suitable property and made an offer that matches or is under the budget set by your lender, you can inform your lender accordingly. Following this, your lender will look up the property. If it meets their lending criteria, they will move to the next step in the loan approval process. This will mean they will do a more thorough review of your financial situation as well as a valuation on the property to make sure you’re paying a suitable price. Once all this is done, they will offer you full approval of your home loan and proceed with the purchase of the property.