Thinking of getting yourself your own home? Before you dip your toes into the mortgage pool, make sure you're ready to have your finances checked for a pre-approved home loan. Pre-approval is usually considered the first step toward purchasing a property, as it allows lenders to run a background check on potential borrowers to determine whether they will have the resources and the ability to pay back their mortgage. As a result, it can be a great way for prospective buyers to find out what sort of loan they can expect when it comes to financing their new home.
With that in mind, the bulk of this process is juggling paperwork to prove your financial capability and stability.
Here are some of the most common documents you'll need to have handy when you apply for a pre-approved home loan:
Proof of Identification
The Australian government laid out a personal identification system called 100-point check, where they’ve assigned a specific number of points to all the major personal identification documents to prevent cases of fraud. The idea, as far as mortgage approval goes, is that consumers should be able to provide at least 100 points worth of identification to fend off any doubts of mistaken/stolen identity or illegally borrowing money.
You can find the full list of point values at the link above, but here are some examples of the points that some forms of identification will give you:
- Passport :70 points
- Birth certificate: 70 points
- Citizenship certificate: 70 points
- Centrelink pension card: 40 points
- Driver's License or permit: 25 points
Proof of Employment and Income.
A regular source of income is a must if you’re looking for a pre-approved mortgage. You have to show that you are steadily, consistently employed: typically by remaining an employee of the same company for a certain amount of time, and that you are paid regularly.
For those who are self-employed, things might be a little different, as you'll have to prove you’re financially stable by showing documentations of your business and/or freelance activities despite not being an ordinary employee. Some ways you can show this include:
- Pay slips/Invoices (for at least three months)
- Tax returns (no longer than 18 months)
Proof of Savings
Banks and other lenders are wary of mortgage seekers, and need to be assured that anyone they’re dealing with has good financial sense. More often than not, they will ask for your bank statements over the past three months, to review how your money flows in and out of your savings account.
Proof of Current Debts
Be honest when you declare your additional debts. Lenders take pre-existing debt into consideration when deciding if you are an ideal candidate for a home loan. As such, billing statements from credit cards and other loans should be submitted so that the lender will have a bird’s eye view of your expenses.
Proof of Assets
Make sure to give your bank a heads-up if you own other assets. If you happen to have real estate properties, you can provide a council rate as an evidence of your ownership.
A Completed Application form
It might feel obvious, but it's worth saying: Make sure to double-and-triple check the application form, and don't forget to sign it!
Once you’ve compiled everything together, pass it on to your preferred lender, who will look into your income and expenses. Provided that everything goes well, you can begin to look around for a new home, but make sure to act quickly, as most pre-approvals are only good for three to six months.
It's important to note that getting a pre-approved mortgage doesn’t guarantee unconditional approval from your bank for any property, as they have the right to refuse you depending on the property that you’re looking to buy. For example, the bank may not back small apartments, hobby farms, or a home in poor repair.
That said, once a bank (or other lender) has issued you a formal pre-approval for a mortgage,you can have the confidence to start really looking for a new home: Sellers will take you seriously because they know there’s a bank that’s ready and willing to back up your offer with the purchase price.