Home loan pre-approval provides home loan lenders with the ability to navigate your finances and credit profile to determine whether your profile matches their criteria for lending.
As a general rule, home loan pre-approval with a sole lender does not impact your credit score. Multiple pre-approvals through different lenders at the same time however, can have negative implications on your credit score - something that should ultimately be avoided when it comes to purchasing your new home.
For buyers in the property market, home loan pre-approval is a process undertaken by lenders that determines whether your desired home loan application fits their criteria to lend you a certain amount of money. This means when the time comes for you to make an offer on a property, you are able to move forward quickly in the buying process.
The pre-approval process involves paperwork, providing your credit profile as well as proof of your income and assets.
If the lender is satisfied that you meet their lending requirements deeming you eligible, the lender will grant you conditional pre-approval to borrow up to a certain amount.
Most lenders offer conditional pre-approval for a period between three and six months.
Throughout the pre-approval process, lenders will seek to understand your current financial position in order to determine whether you are a match. Lenders will typically look at:
Your credit profile or credit history which is a record of loans, credit cards and other credit products you may have used in the past.
Your current financial situation, as mentioned above, including income, assets, regular expenses and how much other debt you have.
The home loan product you intend to apply for, the amount of the loan and your overall suitability taking into account your circumstances.
Lenders will also look to see if you have any pre-existing home loan pre-approvals upon your credit profile. Every pre-approval enquiry no matter the lender, is recorded within your credit profile. This information includes the date of your pre-approval enquiry, the lender and the pre-applied amount.
Home loan lenders may be opposed to lend to someone who has made several pre-approval enquiries over recent months. However, if all your pre-approvals have the tick of approval and are recorded on your credit profile, then lenders may be satisfied with your credit standing.
There are a few key steps you can take in order to keep your credit score in shape when it comes to home-loan pre-approval including:
Lodge your pre-approval applications with a singular lender
Ensure your financial information, including credit profile, is up to date
Explore home loan portfolios across lenders before committing to pre-approvals to ensure the lenders meet your financial circumstances
When using a mortgage broker, the broker will undertake a credit check on your behalf in order to navigate the best home loan lending options for your financial circumstances.
A hard enquiry takes place when you apply for a new line of credit, such as a home loan. This means that a lender has requested your credit profile to determine how much risk you pose as a home loan borrower. Home loan pre-approval is considered a hard enquiry, due to the fact that the lender requests your financial information and credit profile to determine if your circumstances match lender specific criteria.
It may seem harsh, but the reality is even after being pre-approved by lenders, your home loan can be denied. Why might this occur? Some reasons include:
Pre-approval reaching expiry - beyond three to six months.
Change in your financial circumstances.
Lenders deciding to amend their lending policies.
Changes in interest rates.