Getting pre-approved for a home loan is a crucial first step for first home buyers. It gives you confidence in your budget, strengthens your negotiating position, and streamlines the buying process. This guide will walk you through everything you need to know.
What is Pre-Approval?
Pre-approval (also called conditional approval) is when a lender agrees in principle to lend you a certain amount, subject to property valuation and final verification of your circumstances.
Benefits of Pre-Approval
- Know your budget: Understand exactly how much you can borrow
- Stronger negotiating position: Show sellers you’re a serious buyer
- Faster settlement: Reduce time from offer to settlement
- Rate lock option: Lock in an interest rate for a period
- Peace of mind: Shop for properties with confidence
Documents You’ll Need
Identification
- Driver’s license or passport
- Medicare card
- Birth certificate (if required)
Income Verification
- Last 2-3 payslips
- Last 2 years’ tax returns (if self-employed or have investment properties)
- Last 2 years’ financial statements (if business owner)
- Employment contracts or offer letters
Financial Information
- 3-6 months of bank statements for all accounts
- Credit card statements
- Details of any existing loans or liabilities
- Evidence of your savings (including genuine savings)
Assets and Liabilities
- List of all assets (savings, shares, vehicles, etc.)
- Details of all debts and ongoing expenses
- Details of any rental income
Understanding Genuine Savings
Most lenders require at least 5% of the purchase price plus costs to come from genuine savings. This means money that has been saved over at least 3 months.
What Counts as Genuine Savings:
- Regular savings held for 3+ months
- Term deposits
- Shares held for 3+ months
- First Home Super Saver Scheme funds
What May Not Count:
- Gifts from family (unless meets certain criteria)
- Recent lump sums
- Proceeds from sale of assets
- Tax refunds
The Pre-Approval Process
- Initial consultation: Meet with a broker to discuss your situation
- Document gathering: Collect all required documentation
- Application submission: Your broker submits to suitable lenders
- Assessment: Lender reviews your application (usually 2-5 days)
- Credit check: Lender checks your credit history
- Pre-approval issued: Receive conditional approval letter
How Much Can You Borrow?
Lenders assess your borrowing capacity based on:
- Your income (including overtime, bonuses if consistent)
- Your expenses and living costs
- Existing debts and liabilities
- Number of dependents
- Interest rate buffer (usually assessed at 3% above actual rate)
Common Mistakes to Avoid
- Changing jobs: Stay in your current role until settlement
- Taking on new debts: Avoid new credit cards, car loans, or personal loans
- Large unexplained deposits: Can raise questions about borrowed funds
- Gambling transactions: Can impact your application
- Excessive spending: Maintain steady savings patterns
First Home Buyer Schemes
Take advantage of government schemes that may help you:
- First Home Guarantee: Buy with as little as 5% deposit, no LMI
- First Home Owner Grant: Up to $10,000 for new homes (varies by state)
- Stamp duty concessions: Reduced or waived stamp duty in many states
- First Home Super Saver Scheme: Save through super with tax benefits
After Pre-Approval
Once pre-approved:
- Pre-approval is typically valid for 3-6 months
- Start house hunting with confidence
- When you find a property, submit it for formal approval
- Lender will conduct property valuation
- Proceed to unconditional approval and settlement
Working with a Mortgage Broker
A mortgage broker can significantly simplify the pre-approval process by:
- Comparing multiple lenders to find the best fit
- Helping you understand your borrowing capacity
- Preparing your application for best chances of approval
- Navigating complex financial situations
- Saving you time and reducing stress
At KPS Advisory Partners, our experienced mortgage brokers specialize in helping first home buyers navigate the pre-approval process. We’ll work with you to find the right loan and lender for your situation, making your dream of home ownership a reality.