What you need to know about getting a home loan pre-approval
Getting pre-approval for a home loan before you go property hunting puts you in a good position to make an offer on the ideal property. It makes sense to understand your borrowing capacity and the likelihood of getting approval for the amount you’re seeking. Being prepared saves time and money in property transactions.
When you sign a contract for land or a house and land package, the sales agent will want to know whether you have your pre-approval or full approval for finance to complete the purchase.
However, a pre-approval does not mean you will get full approval of your home loan application. Here are things you need to know to ensure that your property purchase goes as smoothly as possible.
1. Why is it important to get pre-approval for finance?
You need to know what your borrowing capacity is and what the banks will potentially lend to you before you go house hunting. Online calculators only give you a part of the picture. They won’t take into account your credit score, salary sacrifices and other factors that may affect your capacity to borrow the funds you need.
The final salary amount and other information required that is taken into account for a pre-approval also varies from bank to bank.
2. What paperwork do you need to submit to get pre-approval?
If you are an employee:
The banks often require only your most recent payslip. They will also do ID checks, request a bank statement and review liabilities such as credit card debt.
If you are self-employed:
For people who are self-employed, the banks will want to know your business structure, i.e. sole trader, trust or company, and will ask you for your last two years of tax returns and current financial statements from your accountant.
3. If your pre-approval gets knocked back, does it affect your credit score?
Every time you apply for any type of credit, it impacts your credit score. The Australian credit score system will disclose the number of applications you have made but won’t necessarily state whether your loan has been approved or rejected.
It’s worth noting that the frequency of submitting an application affects your score. Lending professionals recommend that you don’t apply for loans more than six times in six months – this is only an approximation and depends on the financial institution’s guidelines in approving home loans.
4. What are the most common reasons that pre-approval does not end up in full approval
The bank has provided a pre-approved home loan, but then knocks it back – why?
Here are some possible reasons so that you can be prepared:
– Pre-approved home loans have a limited life span, The Commonwealth Bank approves them for 6 months, but many other banks approve them only for 3 months.
– Your pre-approval is based on your current credit score. If you take out other loans during the time your pre-approved loan is valid, such as car loans or credit cards, this may affect your final approval.
– The property you intend to purchase does not meet the bank’s lending rules. This is mainly due to changing valuations, for example, during COVID lockdowns, property valuations were affected which in turn impacted the lending capacity and pre-approvals for many people.
By knowing why your pre-approval may not lead to a full approval, you can be better prepared. Talk to your home lender about any of these concerns.
5. Know what home grants are available to you
There are a number of grants available at this point in time to consider.
1. $15,000 HomeBuilder Grant until the end of March 2021
2. $10K First Home Buyers Grant if you’re buying or building your first home
3. The First Home Loan Deposit Scheme if you have less than 20% deposit
For more information, read $35k+ Worth Of Reasons To Start Building Your Dream Home At Olivia In 2020.
House and Land in Truganina in a boutique development
Olivia is a small boutique house and land development in Truganina, in the rapidly growing western corridor of Melbourne.
The development has 6.5 hectares of open spaces including a 4.5-hectare sporting ground and a further 2 hectares of family-friendly landscaped parklands.
Contact our Estate Manager, Christian Taverna on 0422 871 939 or [email protected] to make an enquiry and start something beautiful today.
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