Mortgage lenders take many things into account when considering a loan. Factors like income, credit score, and debt-to-income ratio are all crucial and play a role in the process.
But what about if you’re pre-approved for a mortgage, will you get the loan?
Read this article as it gives you information to find out.
What Is a Pre-Approval?
Pre-approval or conditional approval is issued when the lender has agreed to lend the client money to purchase a new home. The pre-approval is an enquiry for establishing your financial position.
Nevertheless, pre-approval is not the final decision leading to home loans being approved.
With the mortgage or home loan pre-approval, the lender or broker will inform you about your borrowing capacities and the maximum amount you can get a home loan approval. For example, Aussies have an average home loan debt of $456,000.
People first tend to get pre-approved and then start looking for their perfect home because the pre-approval gives you certainty about the funds available for your property purchase.
This will narrow down your search only to realistic and budget-oriented housing options.
Getting pre-approved for a mortgage can also give you a competitive edge when shopping for a home by showing the sellers that you are serious about buying a property and have the financial means to do so.
Documentation
If you want to apply for a home loan, the most common documents you’ll need to prepare to get a mortgage pre-approval in Australia include:
- Personal documents: passport, driver’s licence, Medicare card and ATO assessment notice.
- Documentation for income: bank account statements, payslips, employment contract, proof of self-employed or government income etc.
- Proof of assets: superannuation, shares and vehicles
- Liabilities: credit card limits, personal and car loans
- Living expenses: bills, groceries and insurance
- Financial stability factors: debt-to-income ratio (DTI)
Note: The requirements for pre-approval vary from one lender to another, and the key is knowing how to find the most suitable mortgage broker or lender according to your housing and financial needs.
Mortgage Pre-Qualification vs Pre-Approval
Getting pre-approval or pre-qualification are key steps for a home loan.
For some lenders in Australia, the first phase of applying for a home loan is the pre-qualification, and the second is the pre-approval. On the contrary, some loaners use both interchangeably.
Few differences distinguish the pre-qualified and pre-approved home loan borrowers.
| Pre-qualified | Pre-approved | |
| Financial check-up | Initial assessment of financial information | Extensive financial check-up |
| Time frame | Fast process, maybe up to an hour | More time needed, usually up to 10 days |
| Recorded on your credit history | No | Yes |
| Procedure | Online or over the phone | Full application is required |
| Application fees | None | Depends on the lender |
| Amount of home loan | Estimate amount | Specific amount |
| Guarantee you will get the mortgage | No | No |
| Interest rates information | No | Yes |
On the other hand, you can use both pre-qualification and pre-approval for a mortgage as a way to prove to the seller that you are financially stable to make the purchase.
If You’re Pre Approved for a Mortgage, Will You Get the Loan
Issues with the approval for a loan can arise from both the lender’s and the borrower’s side, which can change the outcome and result in a denied home loan.
A few potential reasons lead to mortgage refusal after it has been pre-approved.
- The loan applicant or the co-signatories had lower income compared to the one when they got pre-approved
- Significant movement in the home loan interest rates
- Changes to the mortgage loan approval conditions of the lender
- Adjustments are made, and you want to borrow over 80% of the property’s value, changing the Loan-to-value ratio
- Increased debt
- Changes to the borrower’s financial situation including a bad credit score
- The home appraisal is lower than the loan amount
The DON’Ts During Mortgage Approval
The numbered tips and recommendations below will give you an idea on how to get pre-approval for home loan and what you shouldn’t do while you are in the process of getting your home loan approved.
1.Avoid Making Multiple Home Loan Applications
There is no doubt that thorough research on the lenders’ market and comparing them to find the best offers and home loan or mortgage interest rates is a must. But, you should be careful and not apply for many home loan approvals because every application is recorded in your credit file.
2.Do Not Close a Credit Card Account
Unfortunately, shutting down a credit account you have won’t help you in getting your mortgage approved. Although sometimes it can be good to close a credit card, generally, it won’t make your credit score better. Instead, it could increase your debt-to-credit ratio and reduce your credit score.
Additionally, using your credit cards a lot and adding more debt will increase your debt-to-income ratio and lower your ability to make mortgage repayments.
3.Do Not Increase Your Living Expenses
Vast majority of the lenders in Australia will consider your living expenses in the three months prior to your mortgage application. A golden rule is to look at your credit card and bank account statements and cut down any unnecessary spending.
4.Don Not Miss Other Regular Payments
Having late credit card or loan payments can make the process of getting your mortgage approved harder or even impossible. Lenders access your payment history, and it’s important to pay everything on time.
5.No Large Purchases
The urge to buy appliances and decor for the new home can be hard to overcome. But, you must avoid making big purchases to improve your chances of getting a home loan by not spending your savings.
6.Do Not Change Your Job
Making the bold step and switching jobs while you wait to be approved for a home loan can lead to a revision of the borrowing amount because of income changes.
You might also be interested to know:
What happens when you pay off your mortgage and
How does a mortgage offset account work
Bottom Line
If you’re in the market for a new home, it’s important to get pre-approved for a mortgage before you start house hunting. You don’t want to fall in love with a home or make a deposit only to have your mortgage refused after pre-approval.
Finally, always consult a professional if you have questions about mortgages or the housing market.
FAQs:
1.Does pre-approval mean you will get the loan?
Unfortunately, pre-approval does not guarantee you full approval for the home loan.
2.Can a loan be denied after pre-approval?
Yes, a pre-approved loan can be denied because of reduced borrower income, changes to the approval conditions, major movements in the interest rates market etc.
3.What does it mean if you’re pre-approved for a mortgage?
Getting pre-approved for a mortgage is a confirmation of your creditworthiness, but it doesn’t mean a certain positive answer to the question, “If you’re pre-approved for a mortgage will you get the loan?”.
