Getting on the property ladder is an exciting (and daunting) time, and one of the first steps to take is getting pre-approved from a bank. Pre-approval provides (conditional) confidence as to what the bank will be able to lend you at what kind of rate – think of it like getting an authorization slip from a bank to start shopping, that they calculate on the basis of an initial assessment of your borrowing capacity.
Pre-approval usually takes between three and five days and up to two weeks in more complex scenarios, and by having pre-approval you will be confident that you can bid on a property within your capacity. overall.
Here are some tips to help you prepare to apply for pre-approval so you can lock down your dream home faster.
Prepare your documentation
You can fly solo, do your research online and contact a bank directly to request pre-approval, or you can hire a wingman and work with a mortgage broker (like Finspo) to make the process as smooth as possible.
Whatever your approach, organizing your financial information and documentation is a very important part of the process.
The pre-approval process
Step 1: Paperwork
You’ll need the usual IDs (like Medicare, passport, driver’s license, and utility bills).
You will also need proof of income, three to six months of payslips and your recent ATO payment summary. If you are self-employed, you will need your company’s financial statements and the last two tax returns.
Documents like bank statements showing your current expenses and debts. The bank wants to see what you spend in a month on household expenses, as well as any other loans or credit you have (think car loans, credit card debt, Buy Now Pay Later, and how much you you spend on rent).
They will also want to see proof of savings and deposits, which is also on your bank statements.
Although it seems like a lot to argue about, Finspo offers a range of online tools that can help you get everything in place with as little stress as possible.
Step 2: Revise
The lender will review your application and determine your eligibility for pre-approval
Step 3: Approval
If you pass, you will get a pre-approval, but note that the pre-approval is valid for a limited time, usually between three and six months. After this time has elapsed, you may need to update your financial information with the bank to have it extended or re-approved.
Tips to keep in mind
Credit card And Debt
Banks generally like to see that you have other debts under control and have the ability to pay them when you take out your new home loan. You can work with a broker to understand the impact other debts might have on getting pre-approved. Depending on your situation, you may need to agree to reduce other debts and credit card limits as part of the pre-approval process.
Most banks and lenders require you to have a healthy deposit for your home which can be added to the amount they lend you. This is in addition to costs such as stamp duty that need to be taken into account. Having a down payment of 20% or more (plus money for stamp duty and legal fees) is a good goal, and usually means you can avoid paying for the lenders mortgage. Insurance.
If you don’t have 20%, some banks accept a lower deposit for some borrowers (eg 5% or 10%), but you will likely have to pay the lenders mortgage insurance as one of the terms and conditions of approval. It is also sometimes possible to get help in this area with things like a family guarantee, and this is something you should explore with your bank or broker to understand if it might apply to your situation. .
Find the right approach to get your pre-approval
It is always possible to obtain pre-approval by going directly to a bank. However, working with a digital mortgage broker such as Finspo means you’ll have an expert by your side who can do a lot of legwork to find great options from over 40 lenders and literally thousands of products, and also negotiate interest rates for you.
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Angus Gilfillan is the co-founder and CEO of Finspo, a first free digital mortgage broker.
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