Obtaining Pre-Approval: What’s Involved and How a Mortgage Broker Helps
For many Australians looking to buy a home, pre-approval is a crucial first step in the home loan process. It gives you a clear idea of how much you can borrow and helps you shop with confidence, knowing that a lender has assessed your financial situation. However, the process can be complex, with different lenders having different requirements and approval conditions. This is where a mortgage broker becomes invaluable, guiding you through the process and ensuring you’re in the best possible position when making an offer.
In this article, we’ll break down what pre-approval is, what’s involved, what you need to complete by this stage, and how a broker simplifies the process.
What Is Home Loan Pre-Approval?
Home loan pre-approval (also called conditional approval) is when a lender assesses your financial situation and confirms how much they are willing to lend you. It’s not a guarantee of a loan, but it gives you a strong indication of your borrowing power.
Once you have pre-approval, you can confidently attend auctions or make offers knowing that your finances have been reviewed by a lender. Pre-approval typically lasts between 60 to 90 days, depending on the lender.
What’s Involved in the Pre-Approval Process?
To obtain pre-approval, lenders need to assess your financial position, including your income, expenses, assets, and liabilities. Here’s what’s involved:
1. Submitting an Application
You’ll need to complete a pre-approval application with a lender, which includes:
✅ Your personal details (name, address, date of birth, etc.)
✅ Employment details and proof of income (payslips, tax returns, employment contracts)
✅ A breakdown of your current financial situation (assets, savings, investments)
✅ A list of any debts, including credit cards, car loans, and personal loans
📌 How a Broker Helps: A mortgage broker ensures your application is correctly structured before submission, reducing the chances of delays or rejection.
2. Credit Check & Financial Assessment
Lenders will run a credit check to review your borrowing history and assess your credit score. They will also check your current loan commitments, spending habits, and financial stability.
📌 How a Broker Helps: A broker can review your credit history beforehand and suggest improvements if needed to strengthen your application.
3. Loan Eligibility & Borrowing Capacity Calculation
The lender calculates your borrowing power based on your income, expenses, and deposit size. They also consider factors like:
✅ Loan-to-Value Ratio (LVR) – If your deposit is less than 20%, Lenders Mortgage Insurance (LMI) may apply.
✅ Loan structure – Fixed, variable, offset account, or redraw options.
✅ Debt-to-Income Ratio – Ensuring you can afford repayments comfortably.
📌 How a Broker Helps: A mortgage broker can compare multiple lenders and find the best borrowing power estimate for your situation. Different lenders use different criteria, and a broker ensures you get the best possible outcome.
4. Pre-Approval Decision
Once the lender has assessed your financial position, they will either:
✅ Grant Pre-Approval – You can start house-hunting with confidence.
❌ Request More Information – If further details are needed (e.g., updated financial statements).
❌ Decline Pre-Approval – If the application doesn’t meet lending criteria.
📌 How a Broker Helps: If a lender declines your pre-approval, a broker can find alternative options and help restructure your application for better chances of success.
What Needs to Be Completed by the Pre-Approval Stage?
By the time you apply for pre-approval, you should have:
✅ Saved your deposit – Ideally at least 20% of the purchase price to avoid LMI, but some lenders accept 5-10% deposits.
✅ Cleared or managed debts – Reducing personal loans and credit card debt improves your borrowing power.
✅ Organised key financial documents – Payslips, tax returns, bank statements, and details of any assets/liabilities.
✅ Considered additional costs – Stamp duty, conveyancing fees, inspection costs, and moving expenses.
✅ Worked out a property budget – Having a clear idea of the price range you can afford.
Why a Mortgage Broker Is Essential for Pre-Approval
While borrowers can apply for pre-approval directly with a lender, working with a mortgage broker makes the process easier, faster, and more effective. Here’s how:
1. Comparing Lenders to Find the Best Loan Options
Every lender has different borrowing criteria and policies. A broker compares multiple lenders to find the one that best matches your financial situation.
🔹 Example: One lender may approve a loan that another lender declines due to different income assessment rules.
2. Helping You Avoid Common Mistakes
Many pre-approval applications fail due to incorrect documentation, unrealistic borrowing expectations, or undisclosed debts. A broker ensures your application is accurate, complete, and meets lender requirements.
3. Structuring Your Loan for Long-Term Success
Beyond pre-approval, a broker helps structure your loan with:
✅ The right loan type (fixed, variable, offset, etc.).
✅ The best repayment strategy to suit your financial goals.
✅ Loan features that save money in the long run.
4. Increasing Your Chances of Approval
If you’ve been declined by a lender, a broker can:
✅ Identify the reason for rejection and suggest improvements.
✅ Recommend alternative lenders with more flexible policies.
✅ Help you boost your borrowing capacity by restructuring debts or savings.
5. Ensuring a Smooth Transition to Formal Approval
Once you find a property, your broker helps with:
✅ Submitting your full home loan application.
✅ Coordinating with real estate agents & conveyancers.
✅ Negotiating better loan terms where possible.
Final Thoughts: Is Pre-Approval Necessary?
While pre-approval isn’t mandatory, it provides several key benefits:
✔ Confidence when house hunting – You know your borrowing limit.
✔ Stronger negotiating power – Sellers take pre-approved buyers more seriously.
✔ Faster loan approval – Once you find a property, the process moves quicker.
A mortgage broker simplifies the process, ensuring your pre-approval is structured correctly, helping you compare lenders, and avoiding potential pitfalls. Instead of going through the complex process alone, a broker helps you navigate every step, from pre-approval to settlement.
