What is pre-approval?

Pre-approval is all about getting yourself in the best possible position to present yourself to the bank! This is the time to put your best foot forward. Pre-approval is the max amount the bank will lend you, based on your earnings and savings.

Getting pre-approval gives you the confidence of going to look for houses knowing what you can afford. It makes sure you aren’t looking at $4 million houses, when you can only afford $700,000.

However, pre-approval isn’t a guarantee of a lending amount. If your financial situation significantly changes (e.g you lose your job) between getting pre-approval and actually buying the house, you need to let the bank know.

Importantly, don’t get get too hung up about your current spending. We hear so many people say things like ‘’I’ve been spending too much, I need to wait three months to get my accounts in order’’. While it’s always good to try and save as much as possible (and not spend beyond your means), particularly if you’re saving for a big ticket item like a house, banks realise that your spending will change once you have a mortgage. So, whether you spent $200 on margaritas last weekend is kind of irrelevant for your pre-approval.

For example, if you’re paying $1,000 a month in rent, and the loan you’re applying for means you’ll be paying $2,000 a month in repayments, the bank realises that you’ll have to change your spending habits, so don’t worry about trying to ‘hide’ any of your current spending habits.

What banks don’t want to see is you not being able to manage your finances. For example, if you have multiple credit cards, payments of money you owe to friends or constant bank fees from insufficient funds.

The banks will accept your word that you’ll change your habits when you have a bigger financial commitment. Everyone's spending will change once they have to make mortgage repayments – the bank realises that. A mortgage adviser will present your spending based on what it will be going forward, not what it is now.

Being a freelancer, or owning your own business, is an even better reason to use a mortgage adviser. They’ll be able to advise you on how to navigate the banks to ensure you get that loan approved and that house you’ve always dreamed of.