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Understanding Home Loans: A Beginner's Guide to Pre-Approval.

A man happy for the pre-approval of his home loan

If you're planning to buy a property, you will need to demonstrate to the seller that you have the financial means to do so. For most people, this means obtaining a home loan, and the first step in that process is getting pre-approval for it.

Pre-approval, also known as conditional approval or approval in principle, is an indication from a lender of how much you can borrow, and having it shows that you're a serious buyer. Here are the steps you need to follow to obtain pre-approval:

1. Collect your financial information.

To get an idea of how much you can borrow, you need to provide the lender with a comprehensive picture of your finances. This includes your income, assets, and financial obligations, such as existing debts and living expenses. You will need to provide evidence of everything, such as pay slips, tax returns, title deeds, loan statements, and credit card statements.

2. Meet with a lender or broker.

Make an appointment to speak to a lender or mortgage broker, who will calculate an approximate borrowing figure based on the information you provide. You can fill in a pre-approval application form if you decide to proceed.

3. Undergo a credit check.

The lender will arrange for an independent credit bureau to perform a credit check on you, which may affect whether or not you can borrow money and how much.

4. Receive conditional approval.

Assuming your credit rating allows you to borrow, you will receive a conditional approval certificate from the lender. This certificate is usually valid for 90 days and is an indication, not a guarantee, of the amount you can borrow. Use this figure to determine how much you can spend on a property, taking into account expenses such as conveyancing fees and stamp duty.

Once you've put in an offer on a house, you'll need to obtain full approval for the loan. Contact your lender or mortgage broker with the details of the property, and they'll guide you through the home loan application process. Obtaining pre-approval for your loan is an important part of the home-buying process, and Alecto Finance can help you with finding out how much you can borrow.

Want to learn more? Talk to our brokers today!


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