Avoid these 5 Pre-approval Mistakes when Buying a Home

Getting pre-approved for a home loan is one of the most important steps in your property buying journey. For Australian Defence Force members, understanding this application process can make the difference between securing your dream home and missing out to other buyers.

What is Home Loan Pre-approval?

Home loan pre-approval is when a lender assesses your financial situation and confirms how much they're willing to lend you before you start house hunting. This gives you a clear picture of your borrowing capacity and shows sellers you're a serious buyer with finance already arranged.

When applying for a home loan pre-approval, lenders will review your income, expenses, credit history, and other financial commitments. They'll also consider factors like your loan to value ratio (LVR) and whether you'll need lenders mortgage insurance (LMI).

Benefits of Getting Pre-approved

Having pre-approval puts you in a stronger position when buying a home. Here's why:

• Know your budget: Understanding your loan amount helps you focus on properties within your price range
• Faster settlement: The streamlined application process means quicker approval once you find a property
• Negotiating power: Sellers prefer buyers with pre-approval as it reduces the risk of finance falling through
• Interest rate protection: Some lenders offer rate locks during the pre-approval period

The Pre-approval Application Process

The application process typically involves several key steps:

1. Gather your documents: You'll need recent pay slips, bank statements, tax returns, and details of any existing debts
2. Complete the application: Provide information about your employment, income, expenses, and the property you want to purchase
3. Credit assessment: The lender will check your credit history and verify your financial information
4. Approval decision: If approved, you'll receive a conditional approval letter stating your loan amount and terms

Understanding Interest Rates and Loan Options

When exploring home loan options, you'll encounter different interest rate structures:

Fixed Interest Rate Home Loans offer stability with the same interest rate for a set period, making it easier when calculating home loan repayments. Variable Home Loan Rates can fluctuate with market conditions, which means your repayments may change over time.

Many Defence Force members have access to home loan options from banks and lenders across Australia, often with special interest rate discounts. These can include:

• Reduced variable interest rates
• Waived application fees
• LMI discounts or waivers
• Access to offset accounts to reduce interest charges

Financial Considerations for Defence Members

Your unique employment situation as a Defence Force member can actually work in your favour. Lenders often view military employment as stable and secure, which can positively impact your home loan application.

When assessing your financial situation, consider:

• Your base salary plus allowances
• Potential for deployment income
• Any existing home equity if you're upgrading
• Stamp duty concessions available in some states for Defence personnel

Common Pre-approval Mistakes to Avoid

1. Not shopping around: Different lenders offer varying home loan rates and features
2. Incomplete documentation: Missing bank statements or pay slips can delay your application
3. Overestimating borrowing capacity: Remember to factor in all expenses, not just major ones
4. Ignoring the property market: Pre-approval amounts should align with realistic property prices in your target area
5. Forgetting about additional costs: Factor in stamp duty, legal fees, and inspection costs

Making Your Pre-approval Work

Once you have pre-approval, use it strategically. Understand that pre-approval typically lasts 3-6 months, giving you time to find the right property. During this period, avoid making major financial changes that could affect your approval status.

Consider whether features like an offset account would benefit your situation. These accounts can help reduce the interest you pay on your home loan by offsetting your loan balance with your savings.

Remember that getting pre-approved doesn't guarantee final approval – the lender will still need to assess the specific property you want to purchase.

Securing the right home loan pre-approval sets the foundation for your property purchase. With proper preparation and understanding of the process, you can position yourself for success in the property market.

Call one of our team or book an appointment at a time that works for you to discuss your home loan options and start your pre-approval journey today.