If you are planning your new or first home, you need to take a mortgage for that, and pre-approval will be your first step towards it. It is often seen people skip this step and move forward with budgeted savings and income. However, this is not the right way and you need to check what your actual spending will be to ensure secured finances.
This blog will make your journey memorable by making you understand all about what is mortgage pre-approval and why you need it before initiating your buying process for a new home or first home. It will also tell you about how you can initiate a mortgage pre-approval process, the specifications you need, the time to apply and from where you can take a guide.
Mortgage Pre-Approval
Mortgage pre-approval is the process in which you can easily get all about your financial capability through credit score and financial document analysis. Although it is not a guarantee that you will get a loan with pre-approval, it gives you a clear idea of your spending capacity while planning to buy your new or first home. Further, you can know how much you can borrow with your specific income and savings.
You may be wondering why you need to consider mortgage pre-approval as the first step towards your new or first home when you have all your budgeted savings and income. However, varied reasons are there that will tell you why you need it before initiating your home-buying process.
Clear View of Your Spending Limit
In the initial phase of mortgage pre-approval, your credit score will be checked along with your income and debt analysis, which will provide you with a clear view of your spending limit.
Further, you will also get to know how much debt you can take along with the interest rate you will receive even before initiating your buying process. This will help you keep your budget secured for your further investment plans.
Get Improved Negotiation Power
You will get the amazing benefit of improved negotiation power during negotiations with lenders if you consider pre-approval as your first step. This is because lenders are more likely to lend money to those who work for their secured financing. Thus, you can easily get a mortgage loan at first, ahead of the crowd waiting for it.
Best Interest Rate
In the meantime, with mortgage pre-approval, you can get the best interest rate to finance your home. Further, if there is any case that during pre-approval and the actual transaction, if rates decline, it will bring a lower rate benefit for you. You will even not be obliged to accept a pre-approval mortgage rate so it will be a winning situation for you.
Simplified Property Search
With a clear view of your spending limit, debts, and the interest you can avail, you can simplify your property search. This is because now you will search for property that will fall into your budget.
This will benefit not only in finding you a good choice for your new home but will also help you manage your financial health as well.
Pre-Identification of Issues
Pre-approval is a beneficial step to identify issues early and secure your finances for a home loan. This is because the lender will go through all your financial documents, and if there is any chance of discrepancies, he will let you know.
This way you can improve them on time and seize the chance of getting quick loan approvals for buying your first or new home.
Hence, to get all the above benefits, mortgage pre-approval is the required step for you while buying your new or first home.
Right Time to Apply for Mortgage Pre-Approval
Now that you know why you need a mortgage pre-approval while buying your first or new home, you may be thinking of when you should apply for it. The following is the guide for you:
Even though it is not a necessity to apply for a mortgage pre-approval, however, it will give you multiple benefits as discussed in the above segment. If you are initiating your search for a home, then this is the right time you should initiate your pre-approval process. This means you need to go for it before 3-6 months of planning your buying.
Specifications for Mortgage Pre-Approval
Before going through the mortgage pre-approval process, you need to fulfil the below specifications:
Identification Proof
At the time you go to a lender to initiate your mortgage pre-approval, the first thing you need to give is your identification proof. This will include your birth certificate, citizenship certificate, Australian passport or your passport from another country, ID card with your photo and name, driving licence, land title office record, and telephone, water, gas, or electricity bill.
Along with this, you may be asked to give your Medicare card and lease or rental agreement.
Employment and Income Proof
This is another requirement that you need to fulfil is providing your employment and income proof to your lender. This is to justify your income and eligibility to apply for a mortgage pre-approval.
It will include your salary slips for the last 2-3 months in case you are an employee, an employment letter, tax returns, bank statements, and other income proofs like rental income or freelance work.
However, if you are self-employed, then you need to submit your tax returns, Notice of Assessment from ATO (Australian Taxation Office) and BAS (Business Activity Statements) for the past 2 years.
Additionally, you need to submit your bank statements for the last 3–6 months, highlighting your financial and income transactions, profit and loss statements, and balance sheets of your business.
Assets Evidence
You will also require all your asset evidence, including details of your superannuation statements, investment statements, and evidence of property ownership. Further, you need to give gift documentation showing a statutory declaration of the amount that does not need to be paid.
Credit Report
Lastly, for mortgage pre-approval, you need to provide your credit report highlighting your loan repayment history, total debt amount, credit history length, and credit mix.
If you fulfil all these specifications, then you can easily apply for the mortgage pre-approval process.
Mortgage Pre-Approval Process
To initiate your journey to buy your new or first home, you need to follow a proper process for pre-approval. Thus, below are the steps you can follow:
- Financial Situation Assessment: First, check your financial situation by calculating your budget, credit score, or financial documents like pay slips, bank statements, and tax returns.
- Spot and Select the Right Lender: Find the best lenders for you, compare them, and select the best one who can give you the best loan options catering to your needs. Also, consider the loan features and the fees they are offering while choosing the right one for you.
- Gather Required Documents: Then, gather all your necessary documents like income proofs, asset proofs, ID proofs, bank statements, and income statements.
- Submit Your Pre-Approval Application: Now, after getting ready with all the things, submit your application and wait for the lender to check all your details. He will then tell you about the money you can borrow with your current financial condition and the money they can lend to you.
- Get a Pre-Approval Letter: If all your details are right, you get a pre-approved letter highlighting the amount you are qualified for to get a loan.
- Initiate Your Home Search: After getting approval, you can now initiate your search for your first or new home without any worries considering market trends.
Mortgage Broker for Your Guide
Buying a new home or home for the first time is a crucial decision of your life that needs to be perfect to make your further journey full of satisfaction and happiness. Therefore, you should include the right mortgage broker during your home search and mortgage pre-approval process.
This will benefit you in multiple ways like getting the latest updates about market trends in terms of house prices and the best places for affordable housing. You will also be able to know about fluctuations in government regulations and many more.
You can choose Nfinity Financials as your mortgage broker. We at Nfinity are committed to making your home journey memorable by assisting you in your pre-approval loan process and mortgage advice. We also offer the best guide on your investment decisions, like refinancing, SMSF, and home loans.
Contact us at Nfinity Financials. Or give us a call on 1300 GET LOAN (1300 438 562) or 0456 456 267.
