What is a pre-approved home loan?
Pre-approval means different things depending on which lender you approach, but they all describe something similar.
Whether it is called conditional approval, indicative approval or approval in principle, pre-approval confirms that your application fits your chosen lender’s criteria but remains subject to conditions.
It is not a guarantee of finance.
How to get pre-approved for a home loan?
There are two main kinds of pre-approvals. Both require you to submit a full application and supporting documents like payslips and bank accounts.
What is different is the home loan pre-approval process. A full-assessment pre-approval gives you a stronger indication of where you stand than a system-generated pre-approval because the lender has had a much better look at your circumstances.
A summary of the two types of pre-approvals is below.
With a system-generated pre-approval, you submit a full application and usually some or all of your supporting documents. Unlike the full assessment approval, the supporting information is not assessed by the lender's credit experts.
This kind of easy home loan pre-approval can be received very fast, sometimes immediately, but it will have a lot more conditions and relies entirely on the information that you have entered into the system or told the lending expert, which has yet to be validated.
It is unreliable so you should never make an unconditional offer on a home on the strength of a system-generated approval.
This is where the lender’s credit experts do a full assessment including looking at the documents you supplied and getting a credit check from an independent credit agency. The lender will talk to you and ask you questions about anything they want to clarify and will potentially ask for more information on your finances.
Once they are satisfied with the information you have provided, they will give you a pre-approval, subject to an acceptable valuation of the property you plan to buy, and to no material changes in your financial circumstances.
This type of pre-approval will take a few days to be issued but it will save you a lot more time when you eventually come to seek final approval of the loan. It means that your lender has invested significant effort in assessing your financial position and is still willing to proceed to the next step.
This is the type of pre-approval process used by loans.com.au.
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