Home Loan Pre-Approval: What Lenders Are Looking For

Buying a home is one of life’s most exciting and anxious times and for most, it’s a once in a lifetime experience.

As experts in homes, G.J. Gardner Homes knows how essential it is to have a clear understanding of all the relevant jargon to make informed decisions whilst on this journey.  We’re here to help dispel any misconceptions and keep you knowledgeable so you can streamline your buying. 

When securing a mortgage, home loan pre-approval is a common stage you’re likely to go through. Just as the name would suggest, pre-approval involves the bank pre-approving you to borrow a certain amount of money. With this peace of mind, you’re able to act faster and make offers sooner. 

In a market as volatile as todays, pre-approval gives you a major advantage over your fellow home buyers and could be essential to securing your dream home or land. But how do you secure it?

What is a home loan pre-approval?

When buying a home, setting a budget is crucial to keep you on track and aware of what’s realistic for you and your financial circumstances. Whilst initial viewings and research is always important, meeting with your bank gives you an understanding of what’s actually in your reach. 

In these stages, your bank lender will indicate your borrowing capacity by reviewing your financial documentation, assets and finances. From there, your lender will provide you the amount they’re able to lend. The home loan pre-approval process essentially kick offs the admin involved with a mortgage, as your bank performs the relevant background checks and reviews and determines your borrowing power.

How to get pre approval for home loan 

Each bank will of course, have their own mortgage process depending on their approach and your financial position. However, across the board, any one inquiring for a home loan pre approval will need to provide certain documents as required by law. 

What documents are needed for home loan pre approval

• Personal identification documents (e.g. birth certificate, passport, Australian driver licence) 
• Proof of income (e.g. payslips, tax returns) 
• Information about any debts you have (e.g. loans, credit cards, HECS-HELP debt)
•  Proof of funds and savings
• Credit card information
• Bank account statements for the past few months 
• Information about your monthly living expenses (e.g. how much you spend on groceries, bills, school fees etc.) 
• Asset information (e.g. vehicles, investments, superannuation) 

With this initial documentation, your bank goes through their approval process to see if you’re the right lending candidate. 

Of course, the right candidate will depend on multiple factors and lenders tend to look for key metrics to confirm that you’re the right person. Banks take great risks by lending, and they need to confirm you’re a favourable borrower who can make the mortgage payments. 

What are lenders looking for when approving a mortgage

Across the board, there’s a few main factors your lender will consider when determining if you’re right for a pre-approval.

1. Income: how much  money you earn indicates your ability to pay a mortgage. Whilst higher incomes are usually more successful, how money is managed will also contribute to your pre-approval success.
2. Employment history: your job security as well as job consistency will all inform whether you appear to be a safe borrowing candidate. An unstable job or industry coupled with a low income or poor spending habits isn’t desired.
3. Savings and deposit: your overall financial stability will determine the amount of deposit you can commit. With a bigger deposit saved, you’re likely to have more borrowing power.
4. Spending habits: your lender is looking for a responsible borrower and by reviewing bank statements, they will gain an understanding of where your money goes and whether you’re a responsible spender.
5. Liabilities: any current debts such as HECS or HELP will all influence your experience gaining pre-approval.

If you’re looking to buy a home, all these factors should be considered before you meet with lenders to ensure everything is in order. Overall, lenders are looking for a responsible candidate who they think is safe to lend too. Proven signs of saving, financial literacy and safe spending indicate to the bank that you can pay a mortgage long term and are a worthy investment.

What to do if you’re denied home loan pre-approval?

Despite our best efforts, home loans do get rejected and pre-approval is denied. These cases represent around 14% of home loan applications so it’s not completely uncommon.  

If your loan application has been rejected, the bank’s feedback offers you an opportunity to stabilise your finances so you can one day apply again. 

It’s important to also keep in mind that pre-approval is not a finalised mortgage and your loan application can still be rejected. Whether it’s due to personal changes or changes to the lender’s criteria, a home loan pre-approval doesn’t confirm a successful loan application. 

Get in Touch

If you’re just starting your home buying journey, G.J. Gardner Homes’ friendly team will happily take you through financing options available. With decades of experience, we’re ready to help you navigate this process. Learn more about the cost to build now.