Apex Conveyancing recommends looking for a pre-approval to start your property purchasing journey? Here are some of the documents you need for a home loan pre-approval.
Applying for home loan pre-approval, also known as conditional approval could help buyers feel more confident when stepping into the housing market. It’s when a lender agrees in principle to loan you up to a certain amount of money towards the purchase of a home. A pre-approved mortgage can provide insight into your buying power and allows you to budget and calculate your finances when looking to purchase a property. But what is required for a pre-approved mortgage? Here are some things to prepare and consider when applying for a home loan pre-approval.
How do you get pre-approved for a home loan?
There are several steps involved in obtaining conditional approval for a home loan:
Review the market to see what loans are available and what might suit your needs.
Choose a lender or a mortgage broker.
Apply for a home loan, specifying that you have not as yet picked out a property you want to buy. Many lenders (and mortgage brokers) have an online application process, or you may prefer to make an appointment for a face-to-face meeting (if they offer this).
Supply a range of documents and information (discussed below). The lender will then assess your application, and, if you are approved, will send you information about how much money they are prepared to loan to you.
Review your offer from the lender. If you are unhappy with the outcome, you may need to renegotiate terms or you may want to consider trying other lenders or brokers.
Accept their offer and (if applicable) sign some documents.
Usually, the lender will send you a letter detailing how much money you have been approved to borrow, and how long that approval lasts before you need to reapply or renew the deal. However, keep in mind that even once you have obtained a home loan pre-approval letter, it’s no guarantee that you will be granted the loan when it comes to buying a specific property. The lender will most likely do a valuation check of your intended property, and reassess your approval in more detail when you sign a contract to buy.
What documents do I need for a home loan pre-approval?
In general, the bulk of the work when applying for any home loan is the paperwork needed to put forward your application to a lender. We’ve compiled a list of documents and information lenders generally ask for when applying for a pre-approved home loan.
1. Credit Score Before you apply for a pre-approved mortgage, it’s a good idea to check your credit score beforehand. Your credit score will be one of the factors lenders look at when considering whether to approve your loan, how much you can borrow, the interest rate of your loan and other terms your lender may offer. You can check your score for free online using Canstar’s credit score checker. If you find you have a low credit score, there are ways you can improve your credit score before you apply for a pre-approved mortgage.
2. Proof of Identity
It is a legal requirement that all lenders request proof of ID when assessing a loan application. If you are applying for a loan from a financial institution where you are already a customer, you may not have to do this step. However, when taking out a loan with a new lender, one of the first things they will ask for will be documents to prove your identity. Proof of identification documents can be categorised into three types:
Primary Photographic Identification — for example an Australian Passport, Australian or New Zealand drivers licence, Proof of Age card, International Passport or Australian Government issued Firearms licence
Primary Non-Photographic ID — for example an Australian drivers licence without a photo, Australian or foreign birth certificate, Australian or foreign citizenship certificate, Centrelink pension or healthcare card
Secondary ID — For example a notice from the Commonwealth, State or Territory issued in the last 12 months to you containing your name and residential address and records your provision of financial benefits, Australian Tax Office (ATO) notice issued in the last 12 months containing your name and residential address, overseas drivers licence or a utilities notice from a local government body or utility provider showing your name and residential address and records your provision of services issued in the last 3 months.
Generally speaking, you may only need one Primary Photographic Identification to prove your identity. If you don’t have one, you may be asked to provide a mix of the other types of ID. However, this can differ between lenders.
Proof-of-identification documents usually need to be dated, certified copies of the original document. Generally, lenders will only accept documents that have been certified in the past three months. There are several ways you can certify your documents, the simplest of which is going to your local Justice of the Peace (JP) to verify and sign your documents. If you opt to apply for your pre-approval mortgage in person at a bank, a qualified bank officer may also be able to verify your identity and certify your documents for the loan.
There are generally only two ways you can submit your ID documents to a lender:
Face-to-face: The traditional method is physically presenting your proof of identity documents by booking a face-to-face appointment with the lender or mortgage broker.
Digital submission: You may be able to go through an electronic ID check through the lender’s online application process, which is now common practice. Some lenders are online-only, where there is no option for in-person meetings.
3. Proof of Income and Employment
To understand your financial standing, lenders will also ask for proof of your income and employment. While it typically differs between lenders, for your pre-approval mortgage application you will generally need the following:
If you’re an employee — a copy of your most recent payslips and your most recent Payment Summary (also known as a Group Certificate) from your employer.
If you’re self-employed — personal and business tax returns, Australian Taxation Office (ATO) assessments for the past two, or more, years.
If you have a rental income — the most current signed lease, your most recent rental statement, tax return no older than 18 months, bank account statements that show rental income for any investment properties.
Other potential income documents — for example, share dividends, Family Tax Benefits statement from Centrelink.
4. Deposit and Savings
As an assurance, lenders will also ask for proof of your current savings when you apply for a pre-approval mortgage. This information also functions as a method for lenders to obtain an estimate of your potential deposit amount for the loan. Lenders generally will ask for bank statements showing your savings from the last three months. It could also be another method lenders use to review your expenses.
5. Your Expenses
To assess your financial situation and ability to make repayments, lenders may also ask for documents detailing your everyday living expenses. This could be bank statements, invoices for your utilities, groceries or petrol bills.
6. Current Debts
If you have ongoing debts or financial obligations, your lender will want to know as they’re considered potential liabilities and could impact your borrowing power. Examples would include any ongoing loans, such as personal or car loans, study or student loans, or any ongoing credit card debts. If you have a credit card, lenders may also ask for your maximum credit limit.
7. Current Assets
It is also important for you to inform the lenders of any assets you own. In contrast to debts, these can potentially add to your borrowing power and help lenders see the full picture of your financial situation. Assets worth noting to lenders in your pre-approval home loan application may include:
Property
Superannuation
Investments (such as shares)
Vehicles
Jewellery
Furnishings
8. Property Wish List
Even if you don’t have a definite property in mind yet, lenders like to have a general idea of what you’re planning to purchase with the loan you’re applying for, even if it’s just for pre-approval. Lenders may want to know:
Price range of the properties you’re interested in
The suburb or area you’re looking to purchase in
What type of dwelling you wish to buy, for example, the type of property (house or apartment) and the size (number of bedrooms, bathrooms and car park)
If it’s an investment property, what rental return you are hoping to achieve.
Now that you have your documents prepared, you might want to search and compare different home loans that allow for pre-approval.
To sum everything up, no matter what method you use to buy your property, it is ALWAYS a good idea to have a fully assessed pre-approval in place BEFORE you start looking for a house. Not only is it peace of mind but can also save you time when push comes to shove. A pre-approval is usually free with no downsides, if you are in the market for a new home, it makes life easier by having a pre-approval in place with the lender of your choice.
Please get in touch if you are looking to buy (or sell) or if you are after a recommended mortgage broker.
This article first appeared on www.canstar.com.au