Getting onto the property ladder for this first time? Then getting pre-approval from a bank is one of the first steps you should take! In a nutshell, pre-approval gives you an understanding of what the bank will be able to lend you (conditionally), and at what type of rate, so you can start shopping around for your first home with a set budget in mind. They calculate this amount based on an initial assessment of your borrowing capacity.
Pre-approval typically takes between three and five days and up to two weeks in more complex scenarios. This crucial first step will give you the confidence to make an offer on a property knowing your overall capacity. Here are some helpful tips to help you along the road to pre-approval.
Have your documentation ready
You can go solo, do your online research and approach a bank directly to apply for pre-approval, or you can enlist the expertise of a mortgage broker to help make the process smooth and stress-free.
Whatever your approach, having your financial information and documentation organised is an important part of the process.
The pre-approval process
Step 1: Paperwork
First things first, you will need the usual forms of ID (i.e. Medicare, passport, driver’s licence and utility bills).
You will also need proof of income, three-six months of payslips and your recent ATO payment summary. If you are self-employed, you will need your business financial statements and two latest tax returns.
To get an idea of your monthly household expenses, the bank will also require documents like bank statements, as well as information on any other loans or credit you have (think car loans, credit card debt, Buy Now Pay Later and the amount you spend on rent).
Step 2: Review
The lender will review your application and determine your eligibility for pre-approval
Step 3: Approval
If you are successful, you will have pre-approval. Keep in mind that this is valid for a limited time, typically between three and six months. Once that time is up, you may need to update your financial information with the bank to get it extended or approved again.
Things to keep in mind
Credit cards and debt
Banks typically like to see that you have any other debts under control, and you have the capacity to afford these when you take out your new home loan. Working with a mortgage broker is a great idea to understand the impact that other debts might have on getting pre-approval. Depending on your situation, you may need to commit to reducing 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 that can be added to the amount that they lend you. Having a deposit of 20% or more is a good goal, and usually negates the need to pay Lender’s Mortgage Insurance.
If you’re buying land or a house and land package in a new community like Ortus, it may be possible to secure your home with a lower deposit of 5% or 10%, so be sure to check what your options are.
We hope this brief guide helps you navigate your pre-approval process! Have more questions? Contact our sales team on 0499 940 120 or register your interest via the form below to secure one of the last lots or townhomes in our boutique Cranbourne East community!