How do I get pre-approval for a home loan?

Getting home loan pre-approval can be an important step on your way to buying a home. While not essential, it does give you an idea of how much you can borrow, and it signals to sellers that you’re a genuine prospective buyer.

Keep in mind that you should compare home loans and seek out a low interest rate before applying for pre-approval, as this ensures you’re not wasting time with your application.

In this guide, we’ll be running through what home loan pre-approval means, how to get it and when you should apply.

Home loan pre-approval is when a lender says you’re a suitable candidate for a home loan and indicates how much it’s willing to let you borrow – subject to conditions.

This is why you’ll also see home loan pre-approval referred to as conditional approval or approval in principle, but these terms all mean the same thing.

It’s important to note that getting pre-approval is not a guarantee that you’ll actually be approved for a home loan.

That step is referred to as full or unconditional approval, and it comes later down the track after you’ve made an offer to buy or successfully bid at auction.

Instead, the purpose of getting pre-approval is to understand how much you can feasibly borrow to buy a property, and by setting a budget, it helps you go house hunting with some confidence.

Having home loan pre-approval also signals to sellers and real estate agents that you’re serious about buying property.

If you’re just starting out on your home-buying journey, check our step by step guide on how to get a home loan in Australia to learn more.

Once you’ve compared home loans and chosen a lender, you can request home loan pre-approval by applying online, visiting a branch or calling the provider.

Home loan pre-approval typically lasts for three months, but some lenders may offer up to six months. If you aren’t successful in buying a property during this period, your lender may allow you to renew your pre-approval.

There are a range of documents you’ll need to successfully get pre-approval for a home loan  – we’ve compiled some your lender might require.

Proof of identification

Your lender will need to verify your identity before processing your application, and may require a few forms of ID. These can usually be broken down into primary and secondary documents.

Primary documents

• Australian driver’s licence
• Australian passport
• Australian birth certificate
• Australian photo card / proof of age card
• International passport

Secondary documents

• Medicare card
• Current bank account card or credit card (with your name and signature)
• Electricity, gas, internet or phone bill (up to 12 months old)
• Council rates, water rates or land valuation notice (up to 12 months old)

Proof of employment and income

Your income and employment status will feature quite prominently in your lender’s assessment of you. To put it simply, the more income you earn, the more confidence your lender will have in your ability to repay a loan.

Some proof of employment and income documents your lender might ask for include:

For employees

• Payslips
• Bank statements (showing base salary, casual income, bonuses, overtime)
• Notice of tax assessment
• Letter confirming your employment

For self-employed

• Personal tax returns
• Business’ notice of tax assessment
• Business’ financial statements (balance sheet, profit and loss statement)
• Australian Business Number (ABN)

For rental income

• Bank statements
• Property managing agent statements
• Current lease agreement

Others

• Dividend statement notice (if you receive investment income)
• Superfund statement (if you receive superannuation)
• Government statement (if you receive government payments)

Proof of savings

Lenders will want to see evidence of genuine savings, that is, money that you’ve saved up over time rather than acquired overnight. If your deposit is entirely made up of money you inherited or received as a gift, your suitability as a borrower may be called into question. 

If you’ve saved up a substantial amount of money over several years, it signals to lenders that you’re responsible with your finances and can regularly set aside enough money to be able to service a mortgage.

Breakdown of any assets

The purpose of declaring income and savings is to emphasise your reliability as a borrower. Declaring any assets you own can help to support this. Some assets that lenders can take into consideration include:

• Any other property you own
• Investments or shareholding certificates
• Superannuation balance
• Vehicles
• Valuable jewellery

Breakdown of living expenses

You’ll need to provide a breakdown of your living expenses so your lender has an idea of where your money is going each month – and whether there’s room in your budget to make regular home loan repayments.

You can use Mozo’s budget calculator to help get a picture of your financial situation.

Some expenses your lender will consider include:

• Groceries
• Utilities (electricity, gas, internet and phone bill)
• Vehicle costs (petrol, car insurance, car service)
• Public transport costs
• Leisure and entertainment costs (holidays, dining, outings, memberships)

Breakdown of any debts

Your lender will want to know about any debts you might have, and how these could affect your ability to pay off a home loan. Some examples of debt you might have include:

• Credit card debt
• Buy now pay later debt
• Car loans
• Personal loans
• Study debt
• Other home loans

Whether or not you’ve been a responsible borrower in the past will be a major factor in how much a lender will ultimately be prepared to lend you.

If you have the financial means, try to pay off as much lingering debts as you can and consider cancelling any credit cards you no longer use.

We recommend only applying for home loan pre-approval once you’re ready to buy.

The lender will complete a credit check each time you apply for pre-approval – it involves looking at your credit history and assessing your credit score, and it will register as a hard inquiry on your credit report.

This hard inquiry will impact your credit score, though this should only be temporary, and it probably isn’t anything to be concerned about if you already have a healthy credit score.

However, if you make multiple applications for pre-approval with various lenders at once, or you continue to renew your application after it expires, it could more seriously affect your credit rating.

Before applying for home loan pre-approval, we recommend doing some research around the suburb you’re looking to buy in, and getting an understanding of how much houses and units have sold for in the past three to six months.

From here, you can use our home loan borrowing calculator to get an idea of how much you may be able to borrow, based on these prices.

Finally, if you’re ready to start weighing up your options, you can compare home loans right here on Mozo.