What is a home loan pre-approval, and why does it matter?

Buying a house can be an exciting time. 

For most people, a big part of that process is working with a lender to determine what they can borrow.

Having a pre-approval can streamline the house-buying process. Here’s what you need to know.

What is a pre-approval, anyway? 

A written pre-approval from a lender is confirmation that it is willing to lend a buyer up to a certain amount of money, subject to some conditions. A preapproval is generally only valid for a period of time – often three months. At the end of this, you need to apply to have it renewed or extended.

Those conditions can be things like providing a sale and purchase agreement that is satisfactory to the lender, proof of insurance, and a requirement that the property in question meets the lender’s criteria.

Sometimes, a lender might also ask the buyer to supply a registered valuation in order to obtain an unconditional approval.

The pre-approval letter will explain any conditions that apply – as your mortgage advisers, we can help you understand these. 

Your pre-approval usually won’t include things like the interest rate you will pay, or the repayment amounts – those will be determined a bit later in the process.

The pre-approval process

The pre-approval application process is where we will go through things like your income, your savings history and account conduct, and collate all the documentation to provide proof of these to the lender.

We can guide you through the process but there are some things you can do to make your chances of pre-approval higher. They include; proving you can save the difference between your current rent and the likely future mortgage payments you’ll be making, fully disclosing all your debt, and checking your credit history for anything that might come up as an unwelcome surprise through the application process.

Usually, you’ll need to have been showing good account conduct such asnot going to into unarranged overdraft or having any dishonoured payments.

We will also need information like your identification, proof of address, three months’ of bank account and credit card statements, evidence of your deposit and proof of your income as we work through this process with you. 

How to maximise the benefits of your pre-approval

Being pre-approved means you know how much you can afford to spend, which can help a lot when it comes to house hunting because you will have a clear budget to work within.

It also shows vendors and real estate agents that you are a serious buyer ready to transact, which can help your bargaining power in negotiations.

Often, all you have to do is tick off the property with the lender before you can take action, which can help you get in ahead of other buyers.

If you want to bid at auction, where it is not possible to place finance conditions, you can ask your lender to approve the property before you go, which would allow you to operate as an unconditional buyer, provided you don’t bid more than you have been approved for. 

It is often easier to get pre-approval if you have a deposit that lines up with the current loan-to-value restrictions, you are buying a new build, or you qualify for a Kainga Ora First Home Loan.

Ready to get going? 

If you’re ready to take the next step towards your property purchase, drop us a line. We can help you work out what you need to do to give your home loan pre-approval application its best chance of success, and assist you through the purchase process.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.