Have you been wondering about home loan pre-approval, but have no idea where to begin when it comes to the process? It’s an important step toward building or purchasing a house, and it can save you a lot of trouble down the line, so it’s good to have an idea of what it’s all about.
Here’s our quick guide to getting pre-approved for a home loan.
What Is Home Loan Pre-Approval?
A pre-approved home loan indicates that your chosen lender has agreed to grant you a certain amount of money to purchase a home. However, it is not a formal approval; the loan has not yet been processed or reached the final stages of approval.
Why Do I Need Pre-Approval?
Regardless, a pre-approved loan is quite useful, as it allows you to know the maximum amount of money you can spend on your home, which in turn helps to narrow your search, negotiate and bid with confidence.
You do not have to commit to a pre-approval, but asking for pre-approvals too often in a short period of time can negatively impact your credit score.
Is My Pre-Approval Guaranteed?
Unfortunately, mortgage pre-approval doesn’t guarantee a final approval. Changes to your personal circumstances, government regulations, a negative valuation of the property, or a change in the property’s condition can affect the likelihood of your pre-approval proceeding to final approval. However, if your circumstances have not dramatically changed, the chances of obtaining final approval are very good.
Are There Any Set-Backs?
While the benefits of home loan pre-approval greatly outweigh any negatives, there are a few things to keep in mind when getting pre-approved for a home loan. Firstly, pre-approvals will be visible on your credit file as a form of loan enquiry – having a multitude of enquiries in a short span of time can potentially harm your credit score. This shouldn’t put you off the pre-approval process; instead, it’s best to apply only when you’re seriously considering a purchase, rather than out of curiosity.
How Do I Apply For Home Loan Pre-Approval?
There are a few simple steps you should take when considering home loan pre-approval.
Take A Look At Your Current Finances
Before you apply for a pre-approved loan, it’s best to sit down and take into consideration your current financial position. Consider your income, household expenses, the assets you own and any outstanding debt you may already have. By gathering all of these together, you can get a better sense of what you can afford to borrow.
Research Home Loan Types
Once you’ve calculated how much you may be able to borrow, it’s a good idea to look at the different types of home loans and their features. For example, would you prefer a fixed versus a variable rate home loan? This decision can ultimately save you a bit of money. You should also compare interest rates between lenders.
Fill Out The Pre-Approval Application With Your Chosen Lender
So you’ve found out how much you can borrow, what sort of loan you’d like, and you’ve got your lender. Now it’s time to apply to your lending institution for pre-approval. You can do this online or over the phone. You’ll likely only need to provide quite general information, while your lender will go ahead and assess things such as your credit history and your requested loan.
As you can see, home loan pre-approval is a simple process that can help you confidently navigate the home building or buying process. Why not check out our home designs and start planning your new build with Domaine Homes today?