How long does pre-approval for a home loan take?

If you’re looking for a property, getting pre-approved financing can help you bid with confidence. How long does pre-approval take and how does the process work?

In a competitive housing market, pre-approved financing can take some of the stress out of finding a home, giving buyers the option to offer a home or bid at an auction with more confidence that they know how much money they can spend. Pre-approved funding does come with some strings attached, however, and it’s important to understand how the process works, as well as how long and how long it takes to get pre-approved.

Pre-approved financing, also known as conditional approval for a home loan, is an agreement between a lender and a borrower in which the lender indicates that it is ready to lend to the borrower up to a certain amount of money to finance the purchase of a property. . Some potential buyers choose to seek pre-approval before beginning the home hunting process so they are more confident about the amount of money they can spend. It is important to understand that pre-approval is not an absolute guarantee that a bank or lender will approve a home loan, as it usually comes with certain conditions that must be met before final approval is given. .

Generally speaking, when you seek pre-approval, as with any home loan application, a lender will want to get a picture of your financial situation. Each lender is likely to have slightly different criteria, but to apply you will usually need to provide:

• Identification documents, such as photo ID, health insurance card, or a copy of an Australian passport
• Bank account statements showing the amount of money you have saved for a deposit – usually this will be at least two months worth of statements, or more with some lenders
• Information about any assets you own (such as cars or other property) and any liabilities (such as HECS-HELP balances or other home loans)
• Credit card statements, if you have them
• Proof of income, usually in the form of payslips
• A breakdown of your monthly living expenses, ranging from grocery bills and school fees to discretionary expenses

Lenders will want to look at these documents to get an idea of ​​your spending habits and earning capacity, in order to judge how much money they might be willing to pre-approve for you.

Similarly, when you apply for pre-approval, lenders may also ask you about the price range you are looking for a property in, to help them get an idea of ​​your particular needs and requirements.

It can take anywhere from several business days to several weeks for your application to be processed once you have applied for pre-approval, while some lenders even say applicants can receive their results the same day as the application. Generally speaking, however, the more complex your finances are and the busier your chosen bank or lender is, the longer the process will take. If your application is incomplete or your lender needs additional information about your financial situation, the process may take longer as they wait for you to provide additional documents or supporting evidence.

Typically, once granted, the pre-approval is valid for about two to three months, depending on your lender. After this time, you are likely to need to submit updated documents about your financial situation, so that your bank or lender can assess whether and to what extent your situation has changed. Depending on your situation and needs, a lender may be willing to pre-approve you for the same amount, more or less after this time.

Getting pre-approved for a home loan can have several benefits, including letting sellers know you’re serious, potentially allowing for a shorter conditional period, which can bring settlement closer, and giving you the confidence to know your budget before making an offer on a property you like.

• Let a seller know you’re serious: If you have pre-approved financing, it can show the seller that you’re serious about making an offer on a home and that you already have conditional approval from a bank. or a lender, which could mean they’re likely to consider you a safer option than someone without conditional approval.
• Shorter conditional period: Conditional pre-approval of your financing can give you an advantage over other buyers who offer in the same range, as it will take less time for your bank or lender to give final approval. This may mean that you can offer a shorter time frame for funding approval before the contract becomes unconditional, but it’s a good idea to talk to your lender before shortening the condition in your contract offer.
• Confidence in your budget: Once you have pre-approved financing, you can search for properties within a certain price range, with a fairly clear idea of ​​the maximum price you can afford, which can make the search process easier of a house.

If you’re applying for pre-approval, you might want to think about when you apply, as pre-approval can expire in a short amount of time and multiple applications can impact your credit score.

• Short lead time: Since pre-approvals are usually only valid for two to three months, you may want to wait to get one until you are sure you are ready to buy a property. Otherwise, you may have to make multiple applications, which could be inconvenient and also impact your credit score.
• Impact on credit score: Each time you apply for pre-approval, the bank or lender will perform a credit check to get an idea of ​​your credit history. These checks will remain in your history, and too many of them can affect your credit score, as lenders may consider multiple inquiries in a short period of time as a sign that you are a risky customer and may be less willing to lend you. .

Given the possibility of multiple applications affecting your credit score, it is therefore important to consider applying to only one bank or lender for pre-approval, instead of making multiple applications.

It is important to understand that pre-approved financing does not guarantee that a lender will lend you money to buy a home, and is not the same as getting full, unconditional approval for financing. In general terms, pre-approval is subject to certain conditions, one of which will often be that final approval is “subject to satisfactory review”. This means that the lender will want to have an idea of ​​the value of the property and the amount you have offered for it, in order to decide if the loan is too risky. If the lender thinks you have offered the seller too much, they may not approve your application. Likewise, if a lender feels the property itself poses a risk – whether because of its location, condition or any other factor – your application may be rejected.

If you are considering applying for a home loan and wondering about the available rates, you can start by comparing home loans with Canstar. You can compare over 5,200 home loans on our database, sorted by factors such as interest rate and comparison rate, to find an offer that might suit your financial situation.

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