Obtaining a home loan pre-approval is important so you don’t miss out on that dream home. A home loan pre-approval is when a lender assesses your financial situation and gives you an approved amount to borrow. It’s a vital step which gives you the peace of mind before looking for your first home.
A home loan application process can seem quite lengthy, confusing & daunting for some aspiring first home buyers, so it’s important to get a good understanding of how to start the home loan process and exactly what is involved.
Is getting a home loan pre-approval the first step?
If you go directly to a bank or some brokerage firms, they will deem the first step to be the home loan pre-approval application. However, at FHBA we don’t believe this the case. A FHBA Broker’s/Coach’s first step is to provide a pre-qualification. A pre-qualification involves your Coach conducting a fact find and giving you an approximate range of your borrowing capacity. There are a few reasons why a pre-qualification is better than going straight to a pre-approval, these include:
- If you went straight to a pre-approval it means you may be limiting yourself by going to one lender
- Every time you lodge a pre-approval it will appear on your credit history, this may lead to a deterioration in your credit report (especially if you lodge many pre-approvals!)
- Less time is wasted as you aren’t making several applications with multiple lenders
What details do you need to provide for a pre-qualification & pre-approval?
There are a few details that aspiring first home buyers need to ensure they have ready before engaging the services of a broker or lender for a pre-qualification and/or home loan pre-approval. The information required (and the reason why) includes the following:
At least 100 points of ID will be required to meet the lender’s identification requirements. This can be made up of the following:
- Drivers Licence
- Australian/Foreign Passport
- Medicare Card
- Birth Certificate or Citizenship Certificate
If you currently work for an employer on PAYG (pay-as-you-go tax) the lender will require the last 2-3 payslips or bank statements and employment contract confirming your current income amount and job type. If you are self-employed and run your own business you will be required to send your income tax returns (1 or 2 years worth depending on the lender) and notice of assessments. The lenders may also request some other documents to verify your sources of income:
- PAYG Payment Summaries
- Centrelink statements for family tax benefit amounts
- ATO Business Activity Statements (BAS)
All lenders are now required to do a living expense analysis for each borrower/family. Lenders have their own prescribed minimum amount of living expenses depending on your marital status and number of dependents (i.e. children). If the total amount of expenses you provide is lower than the lender’s prescribed limit then they will use their minimum figures. The living expenses requested usually include the following:
- Medical/Health costs
- Other miscellaneous expenses
Liabilities & ongoing commitments
Every lender in Australia will require details of an applicant’s liabilities and ongoing commitments. Whilst most won’t require statements (however they can request them from time to time) to verify this information, the lenders will require the following details for any car loans, personal loans, novated leases and credit cards:
- Institution/bank the liability is with
- Total amount currently owing
- Current periodic repayments
- Credit card limits
Other items that lenders may include as a liability is your HECS debt and any child support payments.
Lenders will also require a listing of your assets to assess your financial position. Most of your assets won’t have an impact on how much you can borrow. The only asset that tends to have a direct impact on how much you can borrow is your level of savings, the minimum amount of savings you require is 5% unless you are using your parents as guarantors for your first home loan. The list of your assets that each lender will require include the following:
- Balance of savings
- Superannuation balance
- Home Contents
- Motor Vehicle(s)
- And any other valuable items you own
As you can see from the above, a home loan pre-approval doesn’t require many documents that need to be provided. However, each lender will require a list of information which needs to be provided to ensure a pre-qualification or home loan pre-approval can be lodged. A FHBA Broker/Coach can make the process as simple as possible by requesting the information in one go and ensuring your loan is lodged with the most appropriate lender.
To get pre-qualified or to obtain an obligation free and complimentary home loan pre-approval, please complete the form below: