How to get pre-approval for a mortgage

Thinking about purchasing a home? Before you dip your toes into the market, you may want to make sure you are eligible for a home loan and check how much you might be able to borrow. That’s where mortgage pre-approval can come in handy.

The pre-approval process allows a lender to assess a potential borrower on their ability to take on a home loan without drawing up a formal mortgage agreement. Think of it as a conditional ‘okay’ for a home loan – indeed, ‘conditional approval’ is name many lenders give to a pre-approval.

Getting mortgage pre-approval is typically a far simpler process than getting officially approved for a mortgage. It can also make eventually securing an official approval easier, as many of the documents a borrower will need to provide to be approved for a mortgage have already been gathered and provided during the pre-approval process. 

So, what documents are commonly needed to get pre-approval exactly? 

Here are some of the typical bits of paperwork you'll probably need to gather before you apply for home loan pre-approval, as well as the process of applying for pre-approval. It's worth remembering each lender is likely to have a slightly different pre-approval process, perhaps even demanding different documents from one another.

How to get pre-approved for a mortgage

There are several steps involved in the process of getting pre-approval for a mortgage, including:

• Market exploration: Begin by researching available home loan options to find one that best meets your financial needs. Consider factors such as interest rates, loan terms, and lender reliability.
• Select a lender or broker: Choose a lender or engage a mortgage broker to assist in finding the right mortgage product for you. Both have different benefits, so select the option that aligns with your preferences for guidance and service.
• Application process: Apply for a home loan, noting that you have not yet chosen a property to purchase. Many lenders and mortgage brokers offer an online application process, though you might also have the option to schedule a face-to-face meeting if preferred.
• Document submission: Provide the necessary documentation as required by the lender. This might include proof of income, employment verification, and identification documents. The lender will review your application and determine the amount they are willing to lend.
• Loan offer review: Once you receive the loan offer from the lender, review it thoroughly. If the terms are not satisfactory, consider negotiating or consult other lenders or brokers to compare offers.
• Acceptance and finalisation: If the offer meets your needs, accept it and, where applicable, sign the necessary documents to proceed with the home loan pre-approval process.

Which lenders offer mortgage pre-approval?

If you’re in the market for a bank or lender that allows prospective borrowers to apply for conditional home loan approval, look no further.

You can find some of the best deals with lenders that offer pre-approval in the table below.

Important Information and Comparison Rate Warning

Documents needed for mortgage pre-approval

Proof of identification

The first thing a would-be lender will likely want from a mortgage pre-approval applicant is proof they are who they say they are. That might mean submitting 100 points of ID as per the Australian Government's personal identification system, designed to prevent fraud.

Here are some examples of the number of points select forms of identification are typically worth:

• Passport: 70 points
• Birth certificate: 70 points
• Current government issued licence: 40 points
• Centrelink concession or health care card: 40 points
• Medicare card: 25 points

Proof of employment and income

The next thing a future borrower will likely need to prove is whether they can meet mortgage repayments.

That normally means proving where your money comes from; whether it be from a salary, a business, a rental property, or even a pension.

If you’re an employee, you might be asked a few questions on your job and your pay packet. You might also be asked to provide a few months worth of pay slips. 

For those who are self-employed, contracted, or freelance, things might be a little different. You might need to prove you’re financially stable by showing documentation of the income you’ve realised from your business or freelance activities. That might mean providing:

• Pay slips or invoices
• One or two years worth of tax assessments

If you receive any other regular, dependable income, you might wish to offer proof of it as well.

Proof of savings and expenses 

Another critical factor a lender will want to consider is a person’s current financial situation. Namely, the size of their deposit and the method in which they saved it.

A home loan lender might also want to see some ‘genuine savings’ – that is, savings built up over time unlike, say, a gift from the ‘bank of mum and dad’ or an inheritance.  

In addition to that, a lender will likely want to make sure a would-be borrower isn’t living on the cusp of financial discomfort. If your regular discretionary expenses take up a significant chunk of your budget, that might be a red flag to a lender.

More often than not, a bank or lender will ask for a few months worth of bank statements in order to review how money flows in and out of your bank accounts.

Proof of current debts

A person’s borrowing power is perhaps one of the most influential factors in their purchasing decisions. 

For instance, if a person’s dream home comes with a price tag of $500,000, but a lender will only allow them to borrow $400,000, that buyer could be forced to compromise on their property goals.

One thing that might eat away at a person’s ultimate borrowing power is additional debt. 

A lender will generally pre-approve a person for a home loan valued at their maximum borrowing power minus any existing debt they hold.

So, if the person in the above example has a $20,000 car loan, they might only be able to borrow $380,000 in total. 

It’s also worth mentioning that home loan lenders typically consider the limit on a person’s credit card as debt. So, if you have a credit card with a $25,000 limit, even if you don’t use it, you might be pre-approved to borrow $25,000 less than you otherwise would have been. 

All that is to say, a lender will ask for details surrounding any additional debt you carry when you apply for pre-approval.

Proof of assets

On a more positive note, a lender will also likely consider your existing assets as part of your conditional home loan application. 

You might wish to provide proof of ownership of assets such as real estate, businesses, or securities in order to bolster your application for pre-approval.

Details on your ideal property 

You might wish to tell your preferred mortgage provider where you plan to buy and what type of property would suit your needs as part of your pre-approval application.

A home loan lender generally reserves the right to repossess a property in the event a borrower doesn’t meet their repayments. For that reason, the vast majority of lenders will want to know about the property you would like to borrow against.

A general description will typically do for the purposes of a home loan pre-approval. Indeed, many homebuyers seek pre-approval before they seriously consider the market.

However, for ultimate approval, a lender will generally need to know the exact details of the property you wish to purchase.

A completed application form

It may seem obvious, but it's worth mentioning: Make sure to fill out an application form from your ideal lender, and don't forget to sign it! 

Take your time to double- and triple-check the details you’re providing as mistakes could slow down (or even forfeit) your application.

Finally, submit your pre-approval application

Once you’ve compiled all the documents you need to, you can pass them on to your preferred lender, which will get to work assessing your application.

Bear in mind that a particular lender might ask for fewer or additional documents in order to properly consider you as a prospective borrower.

Provided that everything goes well with your application, you will then be able to begin seriously looking around for a new home. Make sure to act quickly, however, as most pre-approvals expire after three to six months. 

It's also important to note that getting a pre-approved mortgage doesn’t guarantee unconditional approval from your bank. It still has the right to refuse you when you officially apply for a home loan, particularly if it believes you’re overpaying for your property. 

That said, once a bank or lender has issued you a formal pre-approval for a mortgage, you can have more confidence to shop for a new home knowing you’ll probably be able to fund an eventual property purchase.

Not to mention, sellers will be more likely to take you seriously if they know a bank appears to be ready and willing to back up any offer you put forward.

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