Home Loan Pre-Approval 101

Are you looking to buy a home or investment property soon? You need a loan but you don’t know how much a lender can give you? There are so many banks but you don’t know how much each will give you and which is the right one? Imagine knowing exactly how much you can borrow before finding your dream property. Basically, the process is pretty straightforward. Most people think that it’s going to take a long time so that’s a preconceived notion that isn’t true. It certainly doesn’t have to take as long as most people would think…

You’ve made a decision to buy a home- and that’s a great decision.

Deciding to buy a home is a smart investment because at the end of the day, for most people, owning is better than renting.  You’ve already made a decision, so it now comes down to the pre-approval process. Pre-approval is essentially a green light from a lender to spend up to a certain amount. This means you know how much you’ve got to work with and can be confident to go after the property you love.

There are different kinds of pre-approval and it’s important that you get a formal written one. Be wary of any website that offers you a pre-approval without taking the time to assess your financial situation. A mortgage broker will compare thousands of loan products to find one that matches your personal situation and financial goals, and organise a formal pre-approval for you. It’s important to get expert advice to help you compare the interest rates. Different loans have different features and repayment options.

It is important that you make pre-approval the first step prior to looking at any home. 

Where do you start? Most real estate agents will recommend you to be pre-approved first before diving into your home search – and that’s essentially correct. Take a look at the pre-approval process from the perspective of what you need to know and what information you’ll need to provide your lender.

The pre-approval process is an analysis of income, assets and credit. Also, the price and value of the property is considered, but won’t be confirmed until you reach the ‘formal approval’ stage. The pre-approval process is used to determine whether or not the loan can be obtained, and if so, the dollar amount of financing that the lender can support. The pre-approval should involve no obligation to move forward. You can find a lender who will not charge you an application fee simply to obtain the pre-approval. When you enquire about a pre-approval, you will be provided with a complete list of items you need to return so that a mortgage broker can accurately and confidently determine your borrowing capacity.

So what are these items that need to be returned to a mortgage broker?

Moving on to the income portion of the pre-approval, note that there are actually two components – income and employment. You’ll need to provide a completed and signed application form, proof of your income such as pay slips and tax returns, proof of your savings such as bank statements, proof of your current debts such as credit cards and other loans, and identification documents such as driver’s license or passport. Different lenders will ask for different documents, so don’t be surprised if the lender asks for a document not included here…

Getting pre-approved for a home loan is not as hard as you may think. If you need a mortgage pre-approval in place, you can speak to the team at Pearl Financial or you can also get in touch by submitting your queries with the form provided.

Author: Shane