How to Strengthen Your Pre-approval Application
Securing pre-approval for a home loan is a crucial step in the home-buying process. It not only provides clarity on your budget but also positions you as a serious buyer in the eyes of sellers and real estate agents. However, strengthening your pre-approval application requires careful preparation and understanding of what lenders are looking for. Here’s a comprehensive guide to help you enhance your pre-approval prospects.
Understanding Pre-approval
Pre-approval is a conditional commitment from a lender indicating how much you can borrow. It is based on an assessment of your financial situation, including your income, credit history, and other relevant factors. Although it is not a guarantee of final loan approval, pre-approval is a valuable tool that can give you confidence in your home search and a competitive edge in the property market.
Steps to Strengthen Your Pre-approval Application
1. Grow Your Deposit
A larger deposit demonstrates financial discipline and reduces the lender’s risk, making you a more attractive candidate for pre-approval. Aim to save at least 20% of the property’s purchase price, as this can also help you avoid paying Lenders Mortgage Insurance (LMI).
2. Decrease Your Debts
Lenders closely examine your existing debts when assessing your application. Pay off credit card balances and reduce any short-term debts to improve your debt-to-income ratio. This will increase the amount you can borrow and enhance your pre-approval chances.
3. Maintain a Stable Employment History
A stable employment record is a positive signal to lenders. If you’re employed, ensure that you have been in your current job for a reasonable period. If you’re self-employed, provide at least one to two years of financial statements to demonstrate consistent income.
4. Prepare a Comprehensive Budget
Submitting a detailed budget with your application can demonstrate your ability to manage finances effectively. Highlight how you plan to save the difference between your current rent and proposed mortgage repayments, and include any adjustments you plan to make in your spending.
5. Organise Your Documentation
Having all necessary documents ready can streamline the pre-approval process. This includes proof of identity, proof of address, bank statements, payslips, and evidence of your deposit. If you’re using KiwiSaver funds, include confirmation of your withdrawal amount.
6. Manage Your Credit History
A good credit score is essential for pre-approval. Ensure your credit report is accurate and up to date by paying bills on time and avoiding unnecessary credit applications. Checking your credit score before applying can help you identify and address any issues.
7. Consult with a Mortgage Adviser
Engaging a mortgage adviser can provide valuable insights and guidance. They can help optimise your application, review your financial situation, and identify potential roadblocks before you apply. Their expertise can enhance your chances of securing pre-approval.
Benefits of a Strong Pre-approval
- Confidence in Budgeting: Knowing your borrowing capacity allows you to focus on properties within your price range, saving time and effort.
- Stronger Negotiating Position: Sellers and agents view pre-approved buyers as serious contenders, which can give you an edge in competitive markets.
- Faster Loan Processing: With pre-approval, the final loan application process is expedited, reducing the time to settlement.
Strengthening your pre-approval application involves careful preparation and a thorough understanding of what lenders require. By growing your deposit, managing your debts, maintaining stable employment, and organising your documentation, you can enhance your chances of securing pre-approval. Consulting with a mortgage adviser and managing your credit history are additional steps that can provide a competitive advantage. With a strong pre-approval in hand, you can confidently navigate the home-buying process and move closer to securing your dream home.