When it comes to buying property, carefully considering all your circumstances and options and having to act fast when you need to can be quite a challenging task for first home buyers.
It’s good to be realistic about what type of property and where you can afford to buy your first home. Therefore, before going any further, you need to determine how much you can borrow. Getting a pre-approval for your home loan is an important step in the home buying journey and should be the first step once you are ready to buy your first home. It allows you to look with confidence, and it helps narrow your options – so you are only looking for properties that you can afford.
What is a home loan ‘pre-approval’?
A home loan pre-approval involves the lender checking your credit history, verifying your income, and on the basis of that information, providing you with a figure you can borrow for your first home. A pre-approval is usually subject to a range of conditions being met by the first home buyer – these will vary from lender to lender.
A pre-approval can also be referred to as one of the following terms by some lenders:
- Conditional approval
- Approval in principle
- Indicative approval
Why does FHBA recommend first home buyers get pre-approved?
Whilst a home pre-approval is not compulsory, FHBA recommends that every first home buyer gets a pre-approval or gets in touch with their broker (or FHBA Coach!) who can assist you in determining your exact borrowing capacity based on your deposit, income & liabilities. A pre-approval is important for the following reasons:
- Most lenders allow a pre-approval to last for 90 days, allowing you 3 months to search for a property before a re-application is required
- A pre-approval doesn’t cost you anything – in fact, the whole home loan process with FHBA Mortgages is at no charge!
- It gives you a clear picture of the maximum amount you can spend on your first home
- If you find a property that is worth less than the pre-approval amount the loan amount can easily be reduced
- You can bid with confidence knowing what your budget is
- Showing a formal pre-approval letter to the agent can sometimes assist you in securing a property, especially if you are competing with a buyer who doesn’t have a pre-approval
What conditions do you need to meet after the pre-approval?
Once again, the conditions before formal approval is issued will vary from lender to lender. Some of the more common conditions include:
- The verification of the information and documents you have provided (some lenders may not do this until you find a property)
- The receipt of updated information and/or documents (especially when you find a property just before the expiration of the pre-approval)
- Approval by the Lenders Mortgage Insurer (which may apply when you are borrowing more than 80% of the property purchase price)
- A satisfactory valuation of the property you are purchasing – usually conducted by an independent valuer when you have found the property
Is a home loan pre-approval reliable?
Not all lenders will do a full analysis of your income and the information provided at the pre-approval stage. Your FHBA Coach/Broker can let you know how reliable the pre-approval is for each of the lenders we have access to. The official pre-approval confirmation letter will state all the conditions that are required to be met prior to the unconditional (or formal) approval being granted.
In summary getting a home loan pre-approval is more reliable than not getting a pre-approval at all!
How can you get pre-approved?
Your FHBA Coach/Broker can assist all aspiring first home buyers by getting you pre-qualified or pre-approved now, at no charge to you. Your Coach/Broker will assist you with the following:
- Pre-qualification – providing you with an estimated borrowing capacity range based on your income, liabilities, and deposit.
- Options – we will give you a range of lending options with a comparison matrix, so you choose which lender you prefer (we will also give you our recommendation)
- Pre-approval – We will submit the pre-approval application with the lender you choose and ensure you get the most suitable deal!