Buying a home is a big commitment and one of your most important financial decisions. It’s natural to feel a little overwhelmed. Still, careful planning and preparation can make the process easier for you by getting a home loan pre-approval as one of your first steps.
What is a Pre-Approved Home Loan?
A pre-approval is a mortgage application that has been conditionally approved by the lender before the borrower makes an offer on a specific property. This means that the borrower has met the lender’s criteria for approval and is likely to be approved for the loan if they can provide the remaining required documentation. That is, generally the only outstanding condition is to in fact purchase a property and have a valuation conducted.
Pre-approval can be valid for a set period, generally 90 days, after which the borrower must reapply or seek an exception to extend. It is important to note that pre-approval does not guarantee approval, as the final decision will be based on the documentation provided. This is why seeking guidance from a mortgage broker is so important.
Why Get Pre-Approval?
One of the first things you need to do when buying a home is getting pre-approval for your home loan. Pre-approval gives you an idea of how much money the lender is willing to lend you. It also shows sellers that you are serious about buying their property.
How to Get Pre-Approved for a Home Loan?
1. Get Your Documents in Order
Home loan pre-approval is a process where the lender reviews your financial information to determine if you are eligible for a loan and how much they are willing to lend you.
The first step is to gather all the necessary documents. The lender will need to see proof of your income, employment, assets, and debts. They will also need to know your credit score. If you are self-employed, you may be required to provide additional documentation, such as tax returns and financial statements. The more information you can provide the lender, the better. Home loan pre-approval can be time-consuming, but it is worth having before you start shopping for your new home.
No doubt this all can feel quite overwhelming, this is why the recommendation is to start by contacting your broker. They will help guide you specifically on what documents will be required so you are not wasting your time collecting unwarranted documents.
2. Shop Around for the Best Home Loan Deal
When you’re ready to buy a home, one of the first things you’ll need to do is find a home loan lender. There are a lot of different lenders out there, and they all have different interest rates, fees and most importantly different policies which may or may not suit your circumstance. Another reason why entertaining a broker and having them on your team is so important.
3. Apply for Pre-Approval
A home loan pre-approval letter is a significant step in the home-buying process. A mortgage pre-approval is an estimate of how much you will be able to borrow based on an assessment of your financial history.
This gives you an idea of what price range you should look for when you start shopping for a home. The mortgage pre-approval process usually involves completing an application and providing supporting documentation, such as proof of income and bank statements.
Once pre-approved, you typically have conditional approval, valid for a set time. This means you are ready to start the home-buying process and can begin looking for a home within your approved price range.
When Should you get Pre-Approval?
If you’re considering buying a home, one of the first steps you should take is to get pre-approval for a home loan. It’s important to remember that pre-approval is not the same as approval, and you may not be approved for the total amount come the time you purchase. However, it can still help give you an idea of what you can afford and what kind of interest rate you can expect.
Generally, getting pre-approval before beginning your home search is a good idea. This way, you’ll better understand your budget and what you can realistically afford. It can also help speed up the process if you find a property you’re interested in later.
What Happens After you get Pre-Approved?
After you get pre-approved for a home loan, the lender will give you a letter stating the maximum amount you qualify for. This letter is typically valid for 90-120 days.
During this time, you should look for a property that falls within your price range. Once you find a property, your broker or the lender will order a home appraisal [valuation] to ensure that the property is worth at least the amount you are borrowing. If everything goes well, the loan will be approved, and you will be on your way to closing on your new home!
If you need any support and/or guidance on your purchasing journey, please don’t hesitate to reach out to the team at GA Finance. We do not charge a fee for service when applying for a pre-approval home loan, so at no cost you can feel comfortable making unconditional offers either at auction or private sale.
