Pre Approved Home Loan – Frequently Ask Questions
What is a pre approved home loan?
A home loan pre-approval is an affordability assessment which determines the maximum size loan amount a new home buyer may qualify for. It assesses an individual’s monthly income in relation to expenditure. Affordability is determined by the amount of disposable income available after each monthly expense has been accounted for.
The general rule that applies for the bank is to only proportion one third of your gross monthly income towards a monthly bond repayment. The pre-approval exercise cannot determine the loan size percentage [i.e. 90% or 100%] you can expect, as this is only determined once an official application with a signed offer-to-purchase is submitted.
How can a pre-approval loan benefit me?
The pre-approval assessment gives you a clear indication of what price range you may shop within, and confirms your minimum credit score required to qualify for a home loan. This allows you to confidently shop for your suitable property purchase, and avoids legal penalties especially when purchasing auctioned properties.
What documents are required to apply for a pre-approval?
- A recent payslip confirming your gross and net salary. 6 months recent payslips are required for commission
and overtime earners
- 3 months recent personal bank statements to verify salary credits and monthly debits
- A legible copy of your ID
- A list of all monthly income and expenses [groceries, fuel, other income such as rental income, maintenance for kids, etc]
- A list of current assets and liabilities [vehicle finance, loans, paid up property, investments, etc]
If I am self employed, can I still apply for a pre-approval?
Pre-approved bonds for self employed clients are usually a grey area, since the banks have introduced stricter lending criteria for self employed business clients.
There are many factors that need to be reviewed when applying for a home loan as a business owner. Due to the intricacy of these assessments, it is difficult to pre-approve the loan merely based on personal income and expenses, as the business’ income and expenditure will play an important role if not more so.
The key aspects each bank looks at is how the business has performed over a period of 3 years. A clear indication of growth, profitability and cash flow must be evident over the 3 year period.
The best way to prepare yourself for the home loan application is to ensure that your financials