The 10 Steps to Getting a Home Loan Pre-Approval

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Finance, a murky world and part of the problem. Houses prices are so expensive it’s impossible to buy it in cash (come on Tony Stark give me a coin). The reality is that most people will require some form of a loan, most likely a home loan. Here, below, the Heroes answer the key steps towards getting a pre-approval.

Step 1: Bank account clean up

Our advice is to not have any preconceived ideas about the house you want to buy. We start off by working towards what the bank is comfortable in lending you and what is truly affordable. So before we look at doing this it’s about getting your house in order by cleaning up your bank accounts.

  • As a part of the finance process, you will need to provide bank account statements. Most banks will ask for 6 months worth of statements, and they will review these for:

    • Savings pattern

    • Expenses

    • Account management (overdrawn fees, late fees, etc)

  • So it’s really important to make their job easier. Banks get a lot of home loan applications, as an example, Commonwealth Bank of Australia which has 20-25% of the home loan market, gets almost 4,000-6,000 home loan applications a week. So you really, want to stand out, make it easy, and give them confidence you are across your finances.

  • Given they look at having things in 6-month blocks, we suggest 6 months prior to applying for a loan to:

    • Move all your savings into one account and keep transferring money into this account to show them the total savings you have

    • Make sure you have an expense account, where you have all your ongoing daily bills and costs

    • Clearly have one account where your income comes into, maybe move parts of it to the above accounts

    • If you are borrowing with a partner, then merge your accounts to joint ones, including joint income, expenses, savings

    • Make sure you always have money in each account, so there are never any late fees, overdrawn, or negative account balances

The questions a bank officer is going to ask themselves when looking through your accounts:

  • Can I easily find how much you earn?

  • Can you see that you are good at savings so a home loan repayment won’t be stressful?

  • Can you easily see all your living expenses (p.s try to keep it low) ?

  • Can you easily see that you are across all your finances, bills, etc

Step 2. Liability check

Now your bank account accounts are in order, we suggest getting all your liabilities in check. Banks understand you will have liabilities, car loans, credit cards, it’s all normal. However, these can lower the amount you can borrow.

Here are the most common liabilities:

  1. Credit Cards

  2. Car loan

  3. HEC/HELP or Student Loans

  4. Personal Loans

  5. Short term loans / Afterpay / Zippay etc.

There are obviously a lot of other loans, but the most common above you need to be mindful of. We suggest if you have credit cards that are not being used, get rid of them. Stop / Close your short-term accounts (Afterpay / Zippay) and the rest make sure you are paying the minimum amounts on time.

Step 3. Know your personal numbers

In this step, it’s about getting a summary of all your points in 1 & 2 above, pretty straight forward.

  • Know your incomes and monthly expenses (i.e have a budget)

  • Choose the amount of savings you want to put towards your property and make sure there is some cash leftover

Step 4: Check your credit scare

Your credit scare… I mean score. Your credit score is a number that provides an insight into the ‘trustworthiness’ of you as a borrower. The credit score is based on a number of factors, include your historical repayments on other liabilities (being the key). Your score is monitored by three large credit reporting agencies in Australia; Equifax, Illion, and Experian. Each of these providers allow you to pay or download your credit report. Your credit score is usually between 0 and 1,000 and 1,200 and the higher the better.

Anything below a 600 is risky territory, here’s a link to get your free reports. You can ask your Mortgage Master in Step #5 below.

Step 5. Find a good Mortgage Master (mortgage broker)

Finance is a rough game, there are over 50 banks in Australia, each with their own niche’s policies. It’s almost impossible to know what each of them is up too. Furthermore, those comparison sites only list one aspect of a bank the Interest Rate, which we hate. There is much more to getting a loan than just the cheapest interest rate. Our view is to find a good Mortgage Master (i.e mortgage broker). A good broker can be with you for the life of your loan, help you in times of hardship, and give you guidance on better offers and tips to help you pay your loan off faster.

Here are the top 5 tips for picking one:

  1. Do a google search and find one with a google review

  2. Speak to them, and see if they are helpful and do they do pre-approvals

  3. A local area broker is usually a bit more specialised and can help answer questions, we most certainly suggest a broker in your state and there are different laws and grants that need to be applied for

  4. Ask them if this is their full-time job, some brokers do it as a side gig (no go!)

  5. Finally, rapport, you need to like and trust the person giving you advice.

Bonus: ask your network of friends, they will most likely have someone that would be super helpful.

Step 6. Provide them with the right documents

The success of getting a loan is all about compliance. Banks live and breathe compliance, so having all your documents ready and your willingness to provide more documents is key to the process. Some of our document tips are:

  1. Have you ID documents up to date, drivers license passports, etc

  2. When providing income documents; payslips, tax returns, make sure they are clear and legible

  3. Your Mortgage Master may ask you to confirm income details in an employment letter, this can be super helpful

  4. When providing bank statements, usually it’s 6 months for bank accounts, 6 months of home loans, and 3 months for all other liabilities

  5. Get access to your Australia MyGov account as it can provide key items like super balance, HECs

  6. Getting access to all your liability providers internet banking so it’s easy for you to download and access up to date information

Our tip, provide everything you can to your Mortgage Master, let them sift through what is required and what is not. The quicker you can respond to their requests the better the process will be.

Step 7. Understand their proposal

Your Mortgage Master should provide you with a proposal, understanding this is key. There are three items to think about:

  1. Do you understand why I am going with this Bank?

  2. Have they looked at a number of Banks?

  3. What are they (and I) prioritising, lowest rate, highest borrowing, or a specific niche policy

  4. Do I understand the loan features; principal and interest or interest-only, fixed vs. variable rates, offset account, or redraw. Make sure, you are across all the key elements, and if not chat to them to find out more

  5. What are the ongoing fees and charges for the bank, and finally, how long does the process take, or what are the next steps?

Step 8. Sign application forms

Simple, forms on forms on forms. To share your private information, your Mortgage Master will need you to sign a number of compliance and application forms. Take time to read these and ask questions, but ultimately, it’s a part of the journey. The quicker you can turn around documents like this, the better.

Step 9. Answer bank questions

Once your loan is submitted to the bank there are a number of ‘stages’ it can pass through till it’s pre-approved. At either of these stages, there could be questions or further documents needed to make a decision. Answer these as quickly as possible, so the process keeps ticking along. Here are some of the potential stages:

  1. Pre-assessment complete – is usually when the bank has verified the supporting documents meet their minimum standards

  2. Exception stage – when the bank has a few further questions, additional documents, or clarification points. The key is to rocket your responses back as soon as possible.

  3. Conditionally approved – this means we are on the right path. The Bank is happy with how things are going and just has a few conditions. Some of the most common are: close a credit card, provide a payslip, or maybe even a missing signature on a form. All of these should be minor and then we are off.

  4. Pre-approved – yep, you guessed it, the Bank is happy with the proposed loan amount and structure, which means you are onto the next stage of buying a property.

Step 10. Get pre-approved (and know your conditions)

Once you have reached the pre-approved stage, breathe a sigh of relief. Now before you charge out there and look to buy property tomorrow, it’s best to understand and re-confirm the conditions to this pre-approval:

  1. How long does this approval last for; usually it’s between 90-180 days

  2. What were the conditions for this approval; remind yourself, did I have to close a credit card, have a certain amount in savings, buy in a specific postcode, etc…

  3. What is the maximum purchase price? Not your loan, what can you actually sign a contract for!

  4. What are the relevant clauses I needed: a finance clause, a valuation clause, and how long do these need to be valid for. Generally, it’s between 14 and 21 business days but, in some states it’s a no-go!

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