Home Loan Preapprovals

For most first home buyers the amount of information that needs to be absorbed and understood years, at first glance, quite bewildering.

For starters you need to come to grips with how banks assess eligibility and then try to work out whether you will qualify for a loan given your own personal circumstances. Many borrowers go through the details and then check with on-line calculators to see whether they are earning enough money to obtain a loan only to discover when they lodge the application they have their request denied.

It can be difficult to recover from the disappointment and it requires a lot of resilience to get your facts together again and try another lender.

But, it does not have to be as difficult as it seems because if you follow this simple checklist you'll have a better idea as to whether you are on the right track or not.

Do you have a clean credit history?

Have you been in your current job for at least six months?

Have you been in the same industry for at least 12 months?

Have you saved 5% deposit for home you wish to purchase, and can you supply bank account statements to prove this?

Do you have enough extra money saved on top of your 5% deposit to pay for things like legal fees, application fees, stamp duties if applicable and lenders mortgage insurance?

Are you earning enough money to be able to easily make the loan repayments every month?

If you can answer yes to all of these questions then the chances are you will qualify for a home loan quite easily. The only point you have to be certain about is that you are earning sufficient income and the only way you can find out is to check with a lender of your choice. You can do this over the phone or try out one of the many on-line calculators but remember that on-line calculators do not always give you the complete answer so it is always better to go directly to the lender you have chosen.

Sometimes however, your circumstances may not be as straightforward as many banks require them to be and you may be left wondering what to do next.

For instance, what if you fall into one of the following categories.

You are self-employed, but only started your business 12 months ago.

You have only saved 3% towards your new house and the rest of the money came from a gift from your parents.

You have only been in your job two months and still have to serve the remainder of your probation.

You are a university graduate and only commenced in your profession three months ago.

Your probation has finished but you have not been in a job for six months nor have you been in the same industry for 12 months.

You tick all the boxes but you have a small default on your credit file because of an unpaid phone bill three years ago.

You have been saving up for your home deposit for the last six months and sold your car to bring your total up to 5%.

All of these circumstances put you outside the normal black-and-white decision-making areas that banks like to operate within. In fact, these are grey areas that need further clarification. So what can you do about it? Well in these circumstances you would be better served to get a preapproval from a selected bank or preferred lender.

What is a preapproval, and how can they assist you?

Obtaining a preapproval lets you test your individual circumstances with a lender to see whether you still qualify for a loan.

Obtaining a preapproval lets you test your individual circumstances with a lender to see whether you still qualify for a loan.

You may receive a conditional approval subject to your fulfilling a few extra conditions.

It will give you peace of mind so you can start looking for a house knowing that your loan is likely to be approved.

What should you do once you have a preapproval?

Having a preapproval does not mean your loan is definitely approved. If you find the house you would like to purchase you should always sign a contract subject to your obtaining a full approval from your chosen lender. This is the most important point of all.

Make sure you understand all of the conditions attached to the preapproval and make sure you can satisfy any conditions that have been advised by the lender.

If you have obtained a preapproval from one lender it is quite possible you will qualify with many other lenders as well, so make sure you obtain plenty of quotes or visit your mortgage broker to make sure you are getting the best deal.

Never treat a preapproval as a definite approval because a bank can easily change its mind or they may impose new conditions that you were not aware of. Once again, only sign a contract subject to your obtaining a full finance approval.

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