What is a Home Loan Pre-Approval?
A Home Loan Pre-Approval is a “Conditional Approval” or “Approval in Principle”.
It is an indication by a Lender that, subject to certain conditions being satisfied, and based on the information provided, they will extend finance up to a particular level and on what terms.
Formal Approval is still required, once you have made an offer on the property you wish to purchase.
Pre-Approvals have an expiry of 90 days up to 6 months depending on the Lender.
As part of the Home Loan Pre-Approval process, you will need to create a budget to show you can service the loan you are seeking.
When doing this, it is important to take care to ensure it includes all your expenses.
Banks now compare what you say you spend – with the “lived reality” shown in your Bank and Credit Statements for the past 3 to 6 months.
You can find out more about this process by reading my post – Home Loan Eligibility Criteria – Monthly Expenses!
Pitfalls to Avoid
A Home Loan Pre-Approval offers many advantages however it is important to be mindful that:
The property you purchase needs to be acceptable to the Lender (Generally Banks don’t favour serviced apartments, student accommodation, apartments less than 40 m2.)
If your circumstances change (additional debt, expenses, employment) before formal approval, the extent to which the Lender will assist may change
Should interest rates increase, or the property market materially change, this may influence how much the Lender is prepared to advance
It is not wise to seek multiple Pre-Approvals, as this can impact your Credit Rating!