It's a sunny world for you and your finances because after years of dithering, you're going to buy your own home.
Firstly, congratulations and cheers to you!
Secondly, here's a good place to start your new journey: pre-approvals.
Read on for our guide to home loan pre-approvals
What are home loan pre-approvals?
Pre-approvals are one of the most important points to consider when applying for a loan as they outline exactly how much a lender is prepared to give you to buy your dream home.
While it's not a 100% guarantee that your actual mortgage application will be approved, pre-approvals are great indicators of how much you can borrow as compared to what you believe can.
And as they give you a much better idea of how much you can really, truly afford, pre-approvals mean you won't waste time considering houses far above your financial reach.
In turn, you'll be more confident when approaching affordable houses and their real estate agents and real estate agents themselves will be far more confident and respectful of you.
Risk of applying for multiple pre-approvals
We considered whether to leave this point until later but we'd prefer to start with it as buyers often don't know about it, which can have major negative consequences for you.
While we are a great fan of pre-approvals and getting one ASAP, we also want you to know that it's crucial to get only one - not a stack.
You may think having a stack of pre-approvals from multiple lenders makes you look great to real estate agents but in fact, it's actually the opposite.
Why?
Every time you apply for a pre-approval, a lender will check your credit score and file, as this will help them discover how financially risky you are.
The multiple "hard enquiries" of a credit score pre-approval check - especially if they're done in quick succession - can indicate that you're in financial dire straits and as such, are shopping around aiming to find a lender who can help you.
This can in turn quickly lower your score and make you look far riskier than you actually are.
And did we mention that hard enquiries can stay on your credit file for up to five years?
Trust us when we tell you that you want your credit score to be as un-risky as possible so bottom line: one is best when it comes to pre-approval applications.
How do I apply for a home loan pre-approval?
Firstly, shop around and don't apply for a pre-approval until you're 200% sure that your preferred mortgage broker or lender is A-OK for you and your real estate needs.
If you're still only vaguely hoping to buy a property one day, hold off on pre-approvals for now and stick with online mortgage calculators and similar.
Remember too, that pre-approvals are only valid for around three to six months, although you can sometimes extend them (more about this point later).
Once you're confident you've found your ideal lender opportunity, here's what you'll need to give them for your pre-approval application:
Financial details
Proof of income including recent payslips
Loan statements (credit cards and other loans)
Bank statements
Australian Tax Office notice of assessments
Liabilities, expenses, assets
Personal identification
Passport, driver's licence or birth certificate
Home loan pre-approval points to consider
Again, we don't wish to burst your bubble but there are some other points to think about even after you've applied for a pre-approval.
What if my home loan pre-approval is rejected?
Sadly, this can happen but it doesn't mean your real estate life is a complete disaster plus you'll definitely know better if and when you try for a pre-approval again.
It may just be a matter of waiting a little longer so that you can save some more cash for your deposit or pump up your credit history.
Or you or your lender may be going through some big changes.
Whatever the rejection reason is, take heart!
No, it won't look great on your credit score to have another pre-approval application but worse things have happened.
We recommend that before handing in your application, you talk to several people in your situation who've had experience with such details and ensure you've done everything right.
Can I extend my home loan pre-approval?
Yes!
As we mentioned above, pre-approvals usually only "last" for up to six months so you may well find you need an approval extension.
And even better: you won't have to hand in all your financial and ID details this time as you've already recently done so (although the lender may need a few extra recent details).
But make sure you talk to your mortgage broker or lender about an extension before your current extension expires - otherwise, you will have to start all over again.
