Why Do I Need Pre-Approval?

Why Do I Need Pre-Approval? With Money Compare

So, the time has come where you feel ready to purchase a property? How exciting! One of the first steps in the home-buying process is getting a pre-approval for a home loan

What is a Pre-Approval?

A pre-approval gives you a ballpark estimate of the amount of money you can borrow to buy a home. Generally, it also indicates how much the lender is willing to lend. This is helpful because it means you can be confident in the next steps of the house hunting or building process. It means you view properties within your budget and prevent yourself from falling in love with a property that you can’t afford. 

Why Do I Need a Pre-Approval?

A pre-approval is useful for potential home buyers because it gives them the confirmation of what they can realistically afford. It also gives you an advantage in the house hunting process. For example, if you view a property, and you decide to put in an offer, you may have an advantage over another party who also loves the property but doesn’t have their finances ready. With a pre-approval, your finances are mostly ready to go, and the vendor may be more likely to take you up on the offer because it won’t take as long to get the financing

Where Do I Get a Pre-Approval From?

You can apply for a pre-approval from a bank or a mortgage broker. Mortgage brokers/ advisors will help navigate you through the process more closely. They can also help you find the best deal on the market, as they are not tied to one certain bank or financial institution. A mortgage broker may be a great choice if this is your first home, as the process can be a little intimidating. 

Banks can also provide pre-approvals. Be sure to compare the rates of all major banks to make sure you are getting the best deal for your needs. 

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What Do I Need?

When applying for a pre-approval, the lender will need to see that you can comfortably afford the repayments, and the deposit. They will need to consider a range of factors to make sure that they can lend to you. These are some of the things you’ll need:

  • Proof of identity: This includes proof of address such as a utility bill, and your passport or valid driver’s licence. 
  • Proof of deposit: Do you have enough money saved for a deposit? Most deposits are 20%. If you are a first time buyer, you may be eligible to use your Kiwisaver funds to help cover a portion of your deposit. 
  • Proof of income: Lenders will want to see you have a consistent income so that you can pay back your loan over time. You can generally prove your income with bank statements, payslips, or an employment contract. If you are self-employed, you’ll likely need to provide financial statements through an accountant. 
  • Your expenses: Typically, you’ll need to show 90 days of bank statements for all your accounts. If you can demonstrate that you have healthy spending habits, you will have a greater chance of a pre-approval. 

How Do I Use Kiwisaver to Buy a Home

What is a Kiwisaver Second Chance?

Need Help? Our Experts Offer Free Advice

Here at Money Compare, we have experts on hand to help navigate you through the home buying process. Simply request a free back by clicking the button below and a fully qualified advisor will be in touch. They can help with any home loan or mortgage questions. 

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Further Reading: 

How Much Deposit Do I Need to Buy a Home?

Top 10 House Buying Tips

Wednesday, 12 June 2024