5 things you need to know about mortgage pre-approval

5 things you need to know about mortgage pre-approval

When it comes to purchasing your first home, there are a few stages every would-be borrower will need to pass through before they sign on the dotted line. And one of the most important stages of home ownership is pre-approval.

What is a home loan pre-approval?

Pre-approval (also known as conditional approval or approval in principle) is different to full home loan approval. It refers to when a lender gives you an understanding of how much they can lend to you in a home loan for you to purchase property.

This allows buyers to know an estimate of the available funds they have to work with for their property search and the negotiation process, as well as the maximum bidding limit at an auction. Not every homebuyer will seek mortgage pre-approval, but it may make the process of purchasing property easier, particularly if you’re a first home buyer.

While there aren’t any serious disadvantages of getting pre-approval, it’s worth keeping in mind that pre-approval will appear on your credit file as a loan enquiry. Multiple pre-approval applications may negatively impact your credit score. Try to ensure you’re only seeking loan approval from one lender that you’ve thoroughly researched before applying.

What you need to know about mortgage pre-approval

There are a few key things every home buyer seeing pre-approval needs to know about the process. These factors may not only impact the amount of funds you’re given access to, but may also affect your credit score and your purchasing timeline.

1. Pre-approvals will expire

The first thing every homebuyer needs to know is that pre-approvals are typically valid for between three and six months. Over this time, home loan interest rates and the property market may fluctuate – both potentially in your favour. Establish exactly how long your mortgage pre-approval lasts for before you begin the property hunt, as it will directly impact your timeline.

2. If your situation changes, so may your pre-approval

Pre-approval is not set in stone. If a buyer’s personal or financial situation changes, the lender may need to adjust the application and their pre-approval credit limit. This is for your benefit, as in this time your circumstances may improve and in turn boost your pre-approval limit. On the flip side, it can protect you from changes that may mean you’re unable to service the loan responsibly and risk not affording mortgage repayments. Changes in circumstance may include career changes, reduction in your working hours, taking on new debt (credit card, personal loan etc.), having children, and more.

3. Different types of pre-approval

Not every form of mortgage pre-approval will show up on your credit file. In fact, an alternative type of pre-approval called ‘online pre-approval’, may be able to provide borrowers with an idea of how much they can borrow without having to perform a hard credit enquiry. If eligible, online pre-approval will also give you an indication of how much you may be approved for. The lender will then perform a hard credit enquiry once you have made an offer for a property and/or applied for full approval.

4. Not every property will be approved

Just because you’ve received mortgage pre-approval does not mean the lender has to approve a loan for the property you’ve made an offer on. In fact, lenders typically carry strict eligibility criteria around the types of property that borrowers may apply for. The property will still need to be valuated and meet satisfactory criteria with the lender. Problem properties may include hobby farms, properties in certain suburbs or damaged and faulty properties. It is worth checking your lender’s terms and conditions around property type before making an offer.

5. Pre-approval may fast track your purchase

If you were to begin searching for a property without pre-approval, you may find that the process of actually signing on the dotted line is delayed. Pre-approval can speed up an individual’s ability to settle on a property, as full approval is generally only a few steps away. Without pre-approval, you’ll need to go through the process of applying for a home loan and hoping that you’re eligible for the right amount of funds needed for the property. Whereas with pre-approval, you already know how much you have to spend, and can fast track the full application and settlement process.

I don’t have mortgage pre-approval, where do I start?

Before you seek mortgage pre-approval, it may be worth doing your own research and calculations around how much you can borrow. Reduce Home Loans offers a helpful calculator for just this: the How Much Can I Borrow calculator.

This calculator helps to mirror the process of when a home loan provider offers pre-approval. Simply enter your personal details, including your income and any expenses, and you may get a good estimate of how much you could be approved for borrowing from a lender.

(29)    For the Rate Cutter Variable where the borrower pays $1170 upfront fees then a corresponding loyalty discount of 0.10% p.a. off the Rate Cutter Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(27)    For the Investor Rate Slasher Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Slasher Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(26)    For the Low Rider Cash Back Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(25)    For the Economizer Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Economizer Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(24)    For the Super Saver Cash Back Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.10% p.a. off the Super Saver Cash Back Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(23)    For the Super Saver Variable where the borrower pays an upfront fee of $1170 then a corresponding loyalty discount of 0.15% p.a. off the Super Saver Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(22)    For the Economizer Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.11% p.a. off the Economizer Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(21)    For the Investor Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(18)    For the Home Owners Dream 1 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(20)    For the Cash Back Hero Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Cash Back Hero Variable (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(14)   For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(12)   For the Investor Rate Lovers Interest Only where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.07% p.a. off the Investor Rate Lovers Interest Only rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(11)   For the Wealth Maximizer 3 year fixed Principal & Interest where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(10)    For the Wealth Maximizer 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Wealth Maximizer reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(9)    For the Home Owners Dream 3 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(8)    For the Home Owners Dream 2 year fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the Home Owners Dream reverted variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(7)    For the Investor Rate Slasher where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.09% p.a. off the Investor Rate Slasher rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(6)    For the Investor Rate Buster Variable where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.08% p.a. off the Investor Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(5)    For the Rate Buster Variable where the borrower pays an upfront fee of $150 then a corresponding loyalty discount of 0.05% p.a. off the Rate Buster Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(4)For the Rate Slasher Variable where the borrower pays an upfront fee of $1,170 then a corresponding loyalty discount of 0.08% p.a. off the Rate Slasher Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(3) For the Investor Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Investor Rate Lovers Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(2)For the Rate Lovers Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Rate Lovers Variable rate (at that time)  will automatically apply after the 5th anniversary of the loan.  These fees and loyalty discount are factored into the comparison rate.  The loan setup fees are not refundable.

(1) For the Low Rider Variable where the borrower pays $0 upfront fees then a corresponding loyalty discount of 0.06% p.a. off the Low Rider Variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(28) For the Rate Crusher 1 Year Fixed where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.05% p.a. off the Rate Crusher reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.

(19) For the 1 Year Fixed Wealth Maximizer where the borrower pays an upfront fee of $697 then a corresponding loyalty discount of 0.20% p.a. off the 1 Year Fixed Wealth Maximizer reverted variable rate (at that time) will automatically apply after the 5th anniversary of the loan. These fees and loyalty discount are factored into the comparison rate. The loan setup fees are not refundable.