Obtaining pre-approval is an important step in the early stages of home loan treat. Not only does this give you an idea of how much you can borrow, but it signals to sellers that you are serious about making an offer.
Whereas pre-approval is a preliminary step to applying for a loan – and is not set in stone once granted – it still requires a lot of paperwork. Below, we’ve compiled some of the main things your lender will ask you when you apply for pre-approval.
Before they can do business with you, your lender will need to verify your identity. To do this, they will need a few pieces of identification, which can usually be broken down into primary and secondary documents.
Examples of primary documents
- Australian driving license
- Australian birth certificate
Examples of secondary documents
- Australian citizenship certificate
- ATO Assessment Notice (up to 12 months)
- Telephone, gas or electricity bill (up to 12 months)
Lenders will usually require a combination of the two. For example, ANZ requires applicants to provide at least one primary document or two secondary documents, while NAB requires two primary documents (one photographic and one non-photographic) and one secondary document.
Your income and employment status will figure prominently in your lender’s assessment of you. Simply put, the more you earn, the more confidence your lender will have in your ability to repay a loan.
Some income documents your lender might ask you include:
- Bank statement showing salary payments
- Your employment contract or a letter confirming your employment
- Super fund statement (if you receive a retirement pension)
- Participation certificates or notice of dividend statement (if you receive investment income).
Things get a bit more complicated if you are a casual worker or self-employed, as there is less certainty about your hours and how much you earn. Fortunately, there are still ways to assure your lender that you are financially stable.
For example, casual workers could be asked to provide proof that they have worked for the same employer for at least six months, as well as payslips showing their last year-to-date earnings summary.
And borrowers who are self-employed can still get into the good books of lenders as long as they can provide their company’s tax assessment, profit and loss statement and balance sheet, and proof that their ABN has been registered for the required amount of time.
Lenders will like to see evidence of real savings, that is, the money you have saved over time rather than having acquired overnight. If your deposit consists entirely of money you inherited or received as a gift, your status as a borrower may be in question.
Having saved a substantial amount over several years tells lenders that you are both responsible for your finances and can regularly set aside enough money to service a mortgage.
You’ll also need to provide a breakdown of your living expenses so your lender knows where your money is going each month and if there’s room in your budget to make regular mortgage payments.
Some things your lender will consider include how much you are spending on:
- Private vehicle expenses (such as gas and car insurance)
- Recreational costs (such as entertainment and meals)
Finally, your lender will want to know about any other debts you may have and how they might affect your ability to pay off a mortgage. These could include:
Whether or not you have been a responsible borrower in the past will be a major factor in how much a bank will ultimately be willing to lend you. So try to pay off as many debts as you can and consider canceling all credit card you no longer use.