Pre-approval for a home loan can give you the power to shop with confidence, but it doesn’t last forever.
For most lenders, home loan pre-approval lasts up to 90 days from the date of initial conditional approval.
This usually happens after the first few enquiries with loans.com.au, and acts to ‘get the ball rolling’ so to speak on your home buying journey. It also gives you some idea of the budget you’re working with when heading to auction or on your private treaty home buying process.
Now comes the start of the fun part - actually shopping for a home. As pre-approval lasts for 90 days, you have close to three months to find a home with that loan amount in conjunction with your deposit.
Pre-approval comes with a few distinct advantages when buying for a home either at auction or through private treaty:
At auction: At auction you are committed to buy the property once the hammer falls, and it’s no use in being the winning bidder if you can’t afford the price. Getting pre-approval gives you peace of mind and the confidence to bid, while staying within this limit.
Private sale: A pre-approval figure may help you negotiate in a private sale, and also shows to the realtor and vendor you are a serious buyer.
Think of pre-approval as your ‘safety net’, giving you confidence to shop, without letting you go overboard in the event of a hot auction or private negotiation.
A pre-approval is generally only an indicator of what your lender is willing to lend, and there is no obligation for the lender to hand over that amount! While it serves as a decent indicator, there are various factors that could impact your course of going from pre-approval to full approval.
Risky property: Homes that are generally considered high risk include inner-city apartments, houses in flood or bushfire-prone areas, or unconventional properties.
Rejected by lender's insurer: You’ll have to pay lenders mortgage insurance (LMI) if your deposit is between 10 and 20%. This also makes your approval at the hands of the mortgage insurer - in loans.com.au ’s case this is Genworth.
Changes in financial status during pre approval phase: Financial status not only includes the loss of a job, but also the addition of new debts such as a car loan, or the addition of a new family member.
Change in interest rates: Interest rates going up affect your mortgage repayment, which can eat significantly into your budget, and subsequently your ability to pay off the home loan. Any hikes in the Reserve Bank’s cash rate can also affect pre-approval.
Pre-approval is usually the link in the chain that comes after doing some basic research, such as:
Working out your borrowing capacity
Working out how much you can afford to repay
Looking at properties and the market or suburb you are interested in
Reviewing what’s on offer from your lender
Ticking these boxes are the first steps to starting your home buying journey, and after that comes the pre-approval step.
The short answer is yes. With loans.com.au you have 90 days to find a house under pre-approval. However, it can easily take longer than this to find your ideal home. Maybe that house you were looking at wasn’t as good as it looked online, maybe your ideal suburb is out of price range, maybe the suburbs in your price range are undesirable. Whatever the case, you can re-apply.
How long does pre approval take?
Pre-approval or conditional approval takes as little as 2 minutes with loans.com.au , and starts with filling out an easy online form.
How long can you be pre approved for a mortgage?
A loans.com.au pre-approval lasts for 90 days, after which you must re-apply if you fail to find a home.
Is it bad to be pre approved by multiple lenders, whether at the same time or at different points in time?
Pre-approval is generally seen differently as an official application for credit. However, if you apply through multiple lenders or more than a handful of times in a 12 month period, you run the risk of hurting your credit score - as it will likely appear on your credit history - especially if you get knocked back.
If you’re ready to start your home buying journey, get pre-approved by filling out our prequalify application in as little as 2 minutes, and speak with one of our lending specialists today.
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Mortgage pre-approvals are good for 90 to 120 days but you can refresh them easily if you need more time.
Getting a mortgage pre-approval should be one of the first steps you take when you are getting serious about buying a home. The only time you shouldn’t get a mortgage pre-approval is if you are paying cash, which in that case ignore everything I say.
It’s difficult to know what you can be approved for if you don’t get a mortgage pre-approval. Also, most home sellers won’t accept your offer until you provide them with a pre-approval letter.
Getting pre-approved is an important first step when buying a house. Let’s dive in and learn more!
What is a Mortgage Pre-Approval?
A mortgage pre-approval is the process where you determine if you can be approved for a mortgage for the purpose of buying a home. The mortgage pre-approval process is not the same thing as getting approved, but it is still very important.
Mortgage pre-approvals are practice for the real thing. You’ll go through a shorter version of the underwriting process with a loan officer instead of an underwriter. The pre-approval process is designed to uncover what you can afford, how much you can qualify, and to pinpoint any areas of concern.
Pre-approvals let you know the price of homes you should be shopping for, how much you’ll need to put down, and what your expected closing costs will look like. It should also ask you to provide documents that support your credit, income, monthly obligations, and assets.
The more work you do upfront, the less likely you’ll have a disaster once you actually find a home and go through the process.
How Long Does it Take to Get Pre-Approved?
Getting pre-approved should only take 1-3 days on average. As long as you complete the application and provide your loan officer with the documents they need, you can be pre-approved as quickly as the same day.
If you have a more complex situation, like past credit issues, self-employment, or you currently own a home, it might take the loan officer a little more time to determine what you qualify for.
How quickly you are able to provide information to your loan officer will also determine how quickly your pre-approval takes. If you provide documents promptly then you should have no problem getting pre-approved in 1-3 days.
Why Do I Need a Pre-Approval Letter
A pre-approval letter gives you the ability to prove to home sellers that you have done the work of determining you can be approved for a mortgage. When you provide a pre-approval letter from a reputable lender, the real estate agents and their seller have confidence that you can purchase the home.
It’s important that your pre-approval letter list the loan program, interest rate, purchase price, and any other terms needed for you to qualify.
How Long Does a Mortgage Pre-Approval Last?
Mortgage pre-approvals are good for 90 to 120 days depending on when your loan funds. The main reason your mortgage pre-approval expires is that each loan program has requirements for how long your credit report is good for.
Fannie Mae and Freddie Mac who purchase mortgages directly from lenders require that the credit report be no more than 120 olds when they receive the loan. It’s for this reason that most lenders will tell you that your pre-approval is good for about 90 days.
It’s important to remember that just because your pre-approval is good for 90 days, that doesn’t mean your documents are. Most of your documents are only good for 30 to 60 days, so if you have to shop for a while don’t be surprised if your loan officer asks you to refresh your documents.
Is it hard to get an updated pre-approval?
Getting an updated pre-approval letter is simple and straightforward. You’ll let your loan officer know that you are still shopping for a home and give them permission to update or refresh your credit report.
Next, you’ll need to give them the following updated documents:
- Paystubs
- Bank statements
When Should I Get a Mortgage Pre-Approval?
The best time to get pre-approved for a mortgage is before you start shopping for a home. It’s always better to have a plan in place before you fall in love with something.
Getting pre-approved early in the process will help you:
- Avoid homes you can’t afford
- Ensure you have enough to cover down payment and closing costs
- Win your offer and not miss out on your dream home
The mistake many first-time homebuyers make is touring homes without being pre-approved. It’s okay to browse homes for sale online to get a feel for what you like, but once you’ve decided you’re serious about buying a home, get a good loan officer on your team. Get pre-approved.
Is Getting Pre-Approved the Same as Getting Pre-Qualified
No. Getting pre-qualified is very different from getting pre-approved. I wish I had the space here to cover the sad stories we’ve seen of home buyers who were only pre-qualified and now had to walk away from their dream home.
Pre-Qualification vs. Pre-Approval
When you get pre-approved, you are allowing a lender to take a deep look into your finances to determine what you can qualify for. A pre-qualification is simply an estimate of what you may be able to afford.
Most of what you see online as “online pre-approvals” are just pre-qualifications. Getting a pre-qualification letter online is very convenient. You don’t have to speak to anyone, provide any documents, are talk about your finances. Win! Or is it?
You can’t submit an offer with a pre-qualification letter, and you also haven’t done the work to ensure you can actually be approved for the loan you need.
A pre-qualification is a guess and a pre-approval is a commitment from a lender to approve you for a mortgage.
How Do I Get Pre-Approved for a Mortgage?
The best way to get pre-approved is to speak with a knowledgeable loan officer. You want to work with someone who is experienced and will have your back.
The process to getting pre-approved is fairly simple:
- Determine your monthly budget
- Speak with a loan officer
- Complete a mortgage application
- Provide financial documents
- Get Your Pre-Approval Letter
Once you have received your pre-approval letter you’ll also want to ask for a fee worksheet or a loan estimate so you can get a breakdown of your monthly charges and upfront charges to see how they fit into your budget.
Also never just shop with one lender. Interest rates and fees (mortgage points) will vary from lender to lender so make sure you get a few different estimates. One easy way to do this is to work with a mortgage broker who can shop dozens of lenders for you at the click of a button.
If you want to purchase a home, following these steps will help make your home buying experience much smoother. Most of the stress caused during the home buying process is a result of not getting pre-approved.
Mortgage Pre-Approval FAQ’s
Does it Cost to Get a Mortgage Pre-Approval?
You should not have to spend any money in order to get a pre-approval. There are some lenders who will charge and application fee or even as much as $500 upfront. They are able to get around current mortgage laws by crediting that amount to your appraisal.
If a lender charges you money up front to do a pre-approval, just know the purpose is to dissuade you from shopping them. You should be very hesitant to work with any lender that needs to take money from you upfront in order to get you to do business with them.
Can You Extend Mortgage Pre-Approval?
Mortgage Pre-Approvals can be extended easily whenever you are shopping for a home. If you follow your lender’s advice and don’t accrue new debt or make any changes to your credit report they may not even re-pull your credit until you go under contract. The main reason mortgage pre-approvals is expire is because your credit report is only good for 90 Days.
Your bank statements and pay stubs also expire every month, so expect your lender to ask you to update these as well.
Can You Get Denied After Pre-Approval?
Yes. It can be extremely frustrating to through the entire mortgage pre-approval process only to have your loan denied in the end. There are few factors that can cause this to happen.
- The Loan officer didn’t not request documents from you up-front to ensure you qualified.
- The application wasn’t completed truthfully.
- The house did not appraise for the purchase amount
- There is an issue with the title of the home
- You aquired new debt during the mortgage process
- You lost or started a new job
There’s a lot of reasons this can happen, this is why providing the whole picture and all of your documents upfront is so import.
Can I Change Lender’s After Getting Pre-Approved?
You can change lenders at any point in the mortgage process until closing. You are not obligated to your lender, but if you have already paid for things like your appraisal you may not get that money back or be able to switch the appraisal. You also might miss your closing date depending on how much time is left.
How Many Pre-Approvals Should I Get?
You only need one mortgage pre-approval to begin shopping. You may want to shop around with different lender’s to find out who can give you the best terms, but you only need to go through the whole process with one lender. A true pre-approval means you’d completed and application, had a lender pull your credit, and you have given them all of the documents they need. You likely don’t want to have a dozen lender’s pulling your credit and combing through your personal documents.
What’s Next After Pre-Approval?
Start Shopping for Homes! This is the exciting part. You get to start looking at homes in person with your real estate agent and make an offer if you find one you like. Check out our How to Buy a House article for more info on the home buying process.