When you’re on the hunt for a new home, it can feel overwhelming – there are plenty of properties to consider and home loan options to weigh up. This is where home loan pre-approval can come in handy.

But does getting pre-approved by lenders damage your credit score? In this article we explain what pre-approval is and how it works, as well as its benefits and how it affects your credit score.

What is home loan pre-approval?

Home loan pre-approval is an indication from a lender that they will likely approve your home loan application. A true and worthwhile home loan pre-approval involves a full credit assessment by the lender.

Sometimes people speak with a broker or lender over the phone and may receive an indication of approval or approval in principle. Be wary of this. If the lender has not fully assessed your financial position your “pre-approval” may be worthless.

When a lender pre-approves you for a home loan, it is for a specific loan amount and loan conditions. Getting pre-approved can narrow down your property search as it gives you an idea of what houses you’ll be able to obtain a loan for.

It’s important to note that home loan pre-approval doesn’t guarantee that you will secure the loan you’ve been pre-approved for. You still have to be able to meet the loan conditions that apply and the lender will need to obtain an acceptable valuation on your chosen property.

A lending specialist can guide you here as they know what properties will be acceptable and can also help you with free property information.

Will pre-approval impact my credit score?

Home loan pre-approval is a form of credit enquiry – meaning each time you apply for pre-approval, it will be recorded on your credit report.

When you apply for pre-approval, the date you’ve applied, the lender you’ve applied with and the amount of money you’ve applied to borrow will all be recorded on your credit report.

This doesn’t make pre-approval inherently bad for your credit score. But, if you apply to be pre-approved with more than one lender in a short period of time, this can start to blemish your credit history.

Why? Because a lender looking through your credit file who sees multiple applications for pre-approval close together could assume that you’ve been rejected from each of these lenders. This could lead them to decide that they don’t want to lend to you.

If you use a professional lending specialist, they generally have access to credit reports or can guide you on how to obtain your own. That way you can deal with any potential issues upfront before you make an application to a lender.

How can I make sure pre-approval doesn’t harm my credit score?

It’s usually a good idea to do have a lending specialist guide you on the best home loan option for you and which lender that will involve. This saves you time and helps you apply via a lender who will support your application as the lending specialist will know the fine points of their credit policy.

This way, you can avoid chasing pre-approval with several lenders, which ultimately will likely be better for your credit score.

Your lending specialist can also keep you updated if your pre-approval is about to run out and you haven’t purchased a property yet. They can help you extend your pre-approval with the chosen lender. This is better than applying again and will likely be better for your credit score.

It could also be worth reviewing your credit report to make sure there are no existing mistakes or errors before you start applying for home loan pre-approval.

How does pre-approval work?

Looking to apply to be pre-approved for a home loan? Here’s how the process works:

  1. Choose your preferred lender and home loan product

Take the time to read over the recommendations from your lending specialist, ask questions, and also focus on the long term features of the home loan that suit you and your financial goals. If you can’t have all the features or flexibility you would like have your lending specialist help you understand why.

Via our personalised fact find approach, LJ Hooker Home Loans lending specialists take you through a full assessment, including your immediate and future goals. Our pre-approvals are fully credit assessed so you can bid or buy with confidence.

  1. Complete an application, including providing supporting documentation

You’ll need to fill out an application as well as provide proof of identity and supporting documentation to prove your income, assets, liabilities and expenses.

Different lenders may have different application requirements and again this is where a lending specialist will guide you and save you time.

  1. Await the lender’s decision

 Once you’ve completed the application, there’s not much to do except wait. In the meantime, you can continue searching for your dream home.

Your ending specialist will keep you updated and work with the lender on any questions they have.

If you’re approved, the lender will outline the terms and conditions of your pre-approval – like how long it lasts, and if you can request an extension.

What are the benefits of getting pre-approved?

Home loan pre-approval has numerous advantages. These include:

  • You can bid or buy with certainty knowing your borrowings limits. This allows you to select the right property and be taken seriously if putting in offers
  • You generally have up to 6 months before your pre-approval expires, with the possibility of an extension, so there’s no rush and you can enjoy the search process – and ensure you pick the right property
  • A lot of real estate agents will only let you bid or put an offer on a property if you can evidence you have a pre-approval in place. This safeguards the vendor if they accept contracts from people who can’t get finance
  • Pre-approvals are free!
  • Your lending specialist will ensure your credit report stays intact

 

Obtaining a pre-approval is easy. Our lending specialists have access to a wide range of home loan options and are available for a no obligation chat via phone, web, or in person. Our pre-approvals are fully credit assessed with guidance around your credit report data.

Simply contact us below and we’ll be in touch.

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This article is prepared based on general information. It does not take into account individual financial objectives or needs and is not financial product advice.