Take the guesswork out of your property search by getting home loan pre-approval before you start. Pre-approval gives you a clear picture of your borrowing power, so you can look at properties within your budget with confidence.
It also saves you time, because you only focus on homes you can actually afford. Want a rough idea first? Try our borrowing power calculator.
On top of that, sellers and agents take pre-approved buyers more seriously. It shows you’re financially ready and committed, which can give you the edge over other buyers.
What is home loan pre-approval?
Lenders also call a pre-approved loan Approval in Principle (AIP) or Conditional Approval. Yes, that’s three names for the same thing.
Whatever your lender calls it, it’s an indication of how much you can borrow before you start looking for a property.
If a bank gives you pre-approval very quickly, it may not be very reliable. People often call this a system pre-approval. It means a credit assessor still needs to check your application, credit history, employment and documents. Using one of these to bid at auction can be risky.
The more reliable type of home loan pre-approval is a Conditional Approval, subject to contract and valuation. It usually takes 2 to 10 business days, because a credit assessor checks your payslips, bank statements, employment and credit history.
The assessor raises any questions at the pre-approval stage, not after you’ve found a property. They then approve your loan up to a set amount, as long as the property you choose meets their valuation criteria.
Do you need pre-approval?
Not necessarily. You can apply for a loan after finding a property, but home loan pre-approval has several advantages:
- Know your budget: You’ll know how much you can afford.
- Be ready to buy: You can make an offer knowing your finance is in place.
- Save time: You’ll only look at properties within your budget.
- Smoother process: There’s less chance of issues during the sale.
Sellers also tend to take pre-approved buyers more seriously, which could be the reason they choose you over another buyer.
Auctions are unconditional, so if you win, you must go ahead with the purchase. That’s why a Conditional Approval, subject to contract and valuation, matters so much.
With it in place, you can bid with confidence, knowing your finance is as close to final as it can be at this stage. If you’ve had a knockback in the past, read what to do if your loan is rejected.
How lenders work out what you can borrow
The principal is the amount you borrow. The larger it is, the higher your repayments will be.
So it’s important to borrow only what you can comfortably repay, allowing for possible rate rises. Our repayment calculator helps you check.
Interest is the cost of borrowing, which the lender charges on the amount you still owe. Rates can be fixed, variable or a mix of both, and each has its pros and cons.
Over the life of your loan, even a small difference in rate adds up. See the types of home loans we can help with.
Serviceability is how much the lender believes you can afford, based on your income, living expenses and existing debts.
To be safe, lenders add a buffer of around 3% to the rate you’re applying for. That way they know you could still make your repayments if rates went up by 3%. As a result, serviceability is often the biggest factor in your borrowing limit and your home loan pre-approval amount.
Ready to get pre-approved?
Buying your first home? Our first home buyer page walks you through grants and deposits, and it’s worth reading up on the hidden costs of buying too.
When you’re ready, call us or book an appointment and we’ll help you get home loan pre-approval sorted.