Home Loan
Pre-Approval

Knowing how much you can borrow before you start searching can make buying a home much easier. Home loan pre-approval allows you to set a realistic budget, narrow down your property search and make offers with more confidence.

While it doesn’t guarantee you’ll get a mortgage, it gives you a clearer picture of your borrowing position before you commit to a property. Here’s how pre-approval works, what lenders look for and how to apply.

What is home loan pre-approval?

Home loan pre-approval is an initial approval from a lender that shows how much they may be willing to lend you for a mortgage, based on the information you’ve provided about your finances. It’s also known as conditional approval or approval in principle, because the lender’s decision depends on certain conditions being met before the loan is formally approved.

Pre-approval is usually arranged before you bid or make an offer on a property, giving you a budget to search within. It isn’t a guarantee of a loan, and you’re not obliged to take it up.

Your pre-approval will typically show the maximum amount the lender may be willing to lend you, how long the approval is valid and any outstanding conditions. It may also include an indicative interest rate and loan term, although the rate isn’t locked in.

Pre-approval is different from formal approval, which is granted once the lender has completed its checks and is satisfied that all conditions have been met. This usually happens after you’ve found a property and had your offer accepted.

Types of pre-approval

Lenders generally offer two types of pre-approval:

1. System-generated pre-approval

   This is the quickest option. An automated assessment gives you an indication based on the details you enter into an online form, sometimes within minutes. Supporting documents usually aren’t checked at this stage, so it’s less likely to reflect the loan you’d actually receive. You could be pre-approved when a full application would be declined, or declined because the system couldn’t consider the detail of your situation.

2. Full assessment pre-approval

   A lending specialist reviews your application, verifies your documents and checks your credit file. This takes longer, from a few hours to a few business days depending on how complex your application is. It’s a more reliable indication of how much you can borrow and the terms you’d receive, which can give you more confidence when shopping around and making offers.

Before relying on pre-approval to make an offer, it’s worth checking whether your lender has fully assessed your financial situation or simply provided an automated decision.

How to get pre-approved for a home loan

1. Compare lenders and home loans

   Start by comparing lenders to find a suitable home loan based on your financial circumstances and borrowing needs. A mortgage broker can help you explore your options before applying.

2. Submit your application

   You can usually apply online, over the phone, through a mortgage broker or at a lender’s branch. You’ll need to provide details about your income, employment, expenses, assets and existing debts.

3. Provide supporting documents

   Your lender may ask for identification, recent payslips, bank statements and other documents to verify your financial situation.

4. Wait for the lender’s assessment

   Depending on the type of pre-approval, your lender may assess your application automatically or conduct a more detailed review of your finances and credit history. They may also request further information.

5. Receive your pre-approval decision

   If approved, you’ll receive confirmation of how much the lender may be willing to lend you, along with any conditions and an expiry date. You can then start searching for a property within your budget.

Speak to a mortgage broker

What are the benefits of home loan pre-approval?

Getting pre-approved for a home loan can make the property-buying process easier and give you greater confidence when searching for a home. Some of the main benefits include:

• Helps you set a realistic budget: knowing how much a lender may be willing to lend you allows you to focus your property search on homes within your price range.
• Gives you more confidence when making offers: pre-approval helps you understand your borrowing limit before negotiating with sellers or bidding at auction, reducing the risk of offering more than you can afford.
• Shows sellers you’re a serious buyer: having pre-approval demonstrates that you’ve already taken steps towards securing finance, which may make your offer more attractive to sellers.
• May speed up formal loan approval: because your lender has already assessed some or all of your financial information, there may be less work to complete once you’ve found a property.
• Generally free to arrange: most lenders don’t charge a fee for home loan pre-approval, allowing you to assess your borrowing capacity without committing to a mortgage.

What should you do before applying for home loan pre-approval?

• Check your credit report

  Review your credit report for errors, missed repayments or other issues that could affect your application. You can request a free copy from Australia’s major credit reporting bodies.

• Review your spending

  Look over your regular expenses to understand where your money goes and identify any unnecessary spending. Cancelling unused subscriptions or reducing discretionary expenses can help free up room in your budget.

• Reduce your existing debts

  Paying down personal loans and credit card balances could improve your borrowing capacity. Reducing unnecessary credit card limits may also help, as lenders generally assess your available credit limits, not just what you owe.

• Build your savings

  Continue putting money towards your deposit and try to maintain a consistent savings history. Some lenders require evidence of genuine savings, particularly if you have a smaller deposit.

• Avoid taking on new debt

  Applying for a car loan, credit card or other finance before seeking pre-approval could affect your borrowing capacity and result in additional credit enquiries.

How long does it take to get pre-approved?

Home loan pre-approval can take anywhere from a few minutes to several business days, depending on the lender and the type of assessment they carry out.

System-generated pre-approval can sometimes be issued almost instantly, while a full assessment typically takes longer because the lender needs to review your financial information and supporting documents.

Several things can affect how quickly you receive a decision, including:

• Your financial circumstances: applications involving multiple income sources, self-employment or a complex credit history may take longer to assess.
• The information you provide: missing or incorrect details and documents can delay the process.
• Your lender’s processing times: some lenders take longer than others, particularly during busy periods.

Responding promptly to any requests for additional information can help avoid unnecessary delays.

What factors impact my chances of pre-approval?

Lenders consider several aspects of your financial situation when deciding whether to pre-approve you for a home loan and how much they’re willing to lend. These include:

• Your income: lenders assess how much you earn, where your income comes from and how consistent it is. This includes whether you’re employed full-time, part-time, casually or are self-employed.
• Your expenses: your regular living expenses, including groceries, utilities, transport and other household costs, help lenders determine how much you can afford to repay.
• Your existing debts: credit card limits, personal loans, car loans, HECS-HELP debts and other financial commitments can reduce your borrowing capacity.
• Your savings and deposit: lenders look at how much you’ve saved, where your deposit comes from and whether you have a history of regular savings.
• Your credit score and history: your credit history helps lenders understand how you’ve managed credit in the past. Missed repayments, defaults and multiple recent credit applications can affect your chances of approval.
• Your employment history: lenders may consider how long you’ve been employed, whether you’re still in a probationary period and how stable your income is. Frequent job changes don’t necessarily prevent approval, but some lenders may require additional evidence of your earnings.

How long will my pre-approval last?

Home loan pre-approval usually lasts between three and six months, depending on the lender, although some may offer shorter periods. Your approval letter will confirm the expiry date.

It’s worth applying for pre-approval when you’re ready to start seriously searching for a property, rather than too far in advance, so you have enough time to find a suitable home before it expires.

Can I extend or renew an expired pre-approval?

If your pre-approval is approaching its expiry date or has already expired, you can ask your lender or mortgage broker about extending or renewing it. Depending on the lender, you may need to submit a new application.

You may also need to provide updated payslips, bank statements and other financial information so the lender can reassess your circumstances. Your borrowing limit could stay the same, increase or decrease, and a new credit check may be required.

Does pre-approval guarantee that I’ll be formally approved?

No, home loan pre-approval isn’t a guarantee that your mortgage will be formally approved. Your lender will still need to complete its final checks and confirm that both you and your chosen property meet its lending requirements.

There are several reasons why your loan might not receive formal approval, including:

• Your financial circumstances have changed: a reduction in income, change in employment or increase in debts or living expenses could affect your ability to meet repayments.
• Your credit history has deteriorated: missed repayments, defaults or taking out additional credit since receiving pre-approval could affect your eligibility.
• The property valuation is too low: if the lender values the property below the agreed purchase price, you may need a larger deposit or additional funds to proceed.
• The property doesn’t meet the lender’s requirements: certain properties, such as those in high-risk locations or with unusual characteristics, may not be accepted as security for the loan.
• Interest rates or lending criteria have changed: changes to interest rates or the lender’s policies could reduce your borrowing capacity or affect your eligibility.
• Additional checks reveal an issue: your lender may identify discrepancies or information during its final assessment that weren’t picked up when you were pre-approved, particularly if you received system-generated pre-approval.

What happens after I get home loan pre-approval?

Once you’ve received home loan pre-approval, you can start looking for a property within your budget. There are a few more steps from here before your mortgage is finalised.

1. Find a property and make an offer: search for a home within your budget and make an offer or bid at auction when you find one that suits your needs.
2. Notify your lender or mortgage broker: once your offer is accepted, provide the property details and purchase contract so your lender can progress your application.
3. Complete the lender’s final checks: your lender will usually arrange a property valuation, verify any outstanding information and confirm that you still meet its lending requirements.
4. Receive formal loan approval: if everything meets the lender’s requirements, you’ll receive formal approval and can review and sign your loan documents.
5. Prepare for settlement: your lender and conveyancer or solicitor will coordinate the remaining steps, including making the loan funds available for settlement. Once settlement is complete, ownership of the property transfers to you.

What do you need to be pre-approved for a home loan?

To get pre-approved for a home loan, you’ll generally have to meet the same eligibility requirements as you would for formal loan approval. These vary between lenders, but you’ll typically need to:

• Be at least 18 years old
• Meet the lender’s residency or visa requirements
• Have sufficient income to afford the proposed loan repayments
• Meet the lender’s credit criteria
• Have an acceptable deposit or other eligible arrangement, such as a guarantor

Meeting these requirements doesn’t guarantee pre-approval, as lenders will assess your individual financial circumstances and borrowing capacity.

You’ll also need to provide documentation and additional information, which may include:

• Proof of identity: such as your driver’s licence, passport, Medicare card or birth certificate.
• Proof of income and employment: recent payslips (often your last two consecutive payslips), and potentially an employment contract or letter from your employer.
• Bank statements: usually three months of transaction and savings account statements showing your income, expenses and savings history.
• Self-employment documents: if you’re self-employed, personal and business tax returns, notices of assessment and financial statements, typically covering the last one to two years.
• Details of your assets: information about your savings, property, investments, vehicles and other assets.
• Details of your debts: outstanding balances and limits on credit cards, personal loans, car loans, HECS-HELP debts and buy now, pay later accounts.
• Living expenses: a breakdown of your regular spending, including groceries, utilities, transport, insurance and other household costs.

Your lender or mortgage broker can confirm exactly what you’ll need to provide before you apply.

Can a mortgage broker help me with pre-approval?

Yes, a mortgage broker can help you compare lenders, understand your borrowing capacity and apply for home loan pre-approval.

Brokers understand the lending criteria of the providers they work with, so they can help identify suitable options based on your income, expenses, credit history and other financial circumstances. They can also help you prepare your application, organise supporting documents and manage communication with the lender.

Once you’re pre-approved, your broker can continue assisting you through the formal approval process, including arranging any additional checks and helping you understand your loan options.

At Savvy, our mortgage brokers can compare home loans from our panel of lenders and guide you through the pre-approval process, helping you find a suitable loan for your needs.

Speak to a mortgage broker