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Step-by-step guide to home loan pre-approval

Many prospective home buyers enter the property market feeling a little clueless and overwhelmed. After all, it’s easy to waste time looking at houses out of your reach when you don’t know what your borrowing capacity looks like. This is why home loan pre-approval can be a highly useful step in the mortgage application process, regardless of whether you are purchasing an investment property or a home to live in.

Getting home loan pre-approval means that you’ve received a formal indication from a lender that they are likely to approve you for a specific home loan amount. Here we’ll explain the requirements, the pros and cons, and everything else you need to know about getting pre-approved for a home loan.

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Pros of getting home loan pre-approval

Some borrowers might look at pre-approval as another unnecessary step in an already complicated homeownership journey. While pre-approval isn’t compulsory, it comes with a range of benefits that makes it something for every future home buyer to consider.

1. Find out how much you can afford to spend on a property

There are more costs that come with buying a home than just saving for a deposit. You have to consider stamp duty, solicitor or conveyancer fees, extra home loan costs and more. So, when it comes to calculating your borrowing power, lenders will factor in the broad range of home loan costs to ensure they don’t allow you to over-borrow.

Getting pre-approved means that you’ll have a specific dollar-figure that the lender is willing to consider lending you. This can help narrow down the property search and limit the risk of you bidding or placing an offer that you can’t actually afford.

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2. Getting pre-approved can improve your home-buying confidence

Knowing what you can afford means that you can comfortably attend and bid at auctions. You can confidently place offers knowing that you can actually afford the property, rather than going in blind like you would without pre-approval.

3. Favoured by vendors

Many vendors (people selling their homes) favour home buyers with pre-approval because it indicates that you are serious about your offer. Plus, there is an increased possibility of a faster settlement process when you are pre-approved. A faster settlement process means that both parties can move on with their new lives and homes as soon as possible.

4. Pre-approval is free

Unlike many formal home loan applications, pre-approval applications come at no cost to you. So, if you’re serious about obtaining a home loan with a certain lender, what do you have to lose?

5. Most pre-approval offers last between 3-6 months

Lenders typically offer pre-approvals that are valid for 3-6 months. This gives most people sufficient time to find their dream home without having to rush. Many lenders even allow you to extend the pre-approval towards the end of the term. If you want to extend your pre-approval, chat with the lender or a Home Loan Specialist.

Cons of getting home loan pre-approval

1. A credit check is involved

Each time you apply for pre-approval, it is recorded in your credit history as a credit enquiry. Therefore, you want to avoid applying for pre-approval with multiple lenders. Credit enquiries aren’t necessarily looked at as stains on your credit file, however some lenders may assume that other lenders have rejected your application.

Think about chatting with a mortgage broker before applying to make sure you are looking at a home loan that really works for you.

2. Pre-approval is still conditional

If your financial circumstances change or the bank alters their lending policies, your pre-approval could end up being marked as invalid, or the lender could decide to not approve you for the loan in the end. Keep on top of any changes the lender is making as they won’t always communicate these with you.

3. Getting pre-approved isn’t guaranteed

There is always a possibility that your application for pre-approval gets rejected. Common reasons for this may include:

  • Poor credit score
  • Policy changes with the lender
  • Inadequate supporting documentation
  • Changes in your lifestyle or financial situation
  • High Loan to Value Ratio (LVR) application

4. Prepare your paperwork!

Most pre-approval applications require a lot of documentation. Since you’ll also be asked to provide paperwork when you formally apply for a mortgage, it may actually be helpful to already have the documents ready to go.

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What documents are required to get pre-approved for a mortgage?

Lenders may request different documents, but they will typically request the following:

  • Recent pay slips
  • Most recent tax return/income statement/PAYG summary
  • Multiple forms of identification, such as driver’s license, birth certificate, or passport
  • Details and loan statements associated with any existing loans (e.g. personal or car loan, credit cards)

In addition to these documents, lenders will want to see proof of funds that will cover the deposit, stamp duty, lender fees and other initial costs. Proof of funds will usually include bank statements, shares, equity, term deposit, or a gift letter from family.

Do you have to follow through with a home loan after getting pre-approved?

No, you have zero obligation to stick with the lender or home loan you were pre-approved for. The best part about pre-approval is that it’s free and you lose nothing. The only thing to remember is that it involves a credit check and will be recorded on your credit report as a credit enquiry.

Read our article on switching mortgage lenders after pre-approval for more information.

Reasons to not follow through with a home loan after pre-approval:

  • You find a more competitive or suitable home loan
  • Your personal or financial circumstances have changed
  • You decide you want to go with a different lender
  • You want a different loan amount
  • You are holding off from buying a house

If you’re concerned that the loan you’ve been pre-approved for isn’t best for you, get in touch with a Home Loan Specialist to look over your other options.

How to apply for home loan pre-approval


Here are the basic steps you need to take to get home loan pre-approval:

1. Research home loans and lenders

Comparison websites like Lendi make it easy to shop around, compare loans and interest rates offered by multiple lenders in one place. Our Home Loan Specialists are on hand to answer any questions and provide guidance should you need it.

2. Fill out the application

The application you complete will require you to share details about your income, assets, expenses and debts. If you use Lendi’s platform, you can easily apply online.

3. Provide your supporting documents

These requested documents will usually include:

  • Recent pay slips
  • Most recent tax return/income statement/PAYG summary
  • Multiple forms of identification, such as driver’s license, birth certificate, or passport
  • Details and loan statements associated with any existing loans (e.g. personal or car loan, credit cards)

4. Demonstrate proof of your funds and ability to complete the purchase

Lenders will also want to check that you can actually afford to complete the purchase. So, they’ll request proof of funds in the form of bank statements, equity, shares, term deposit, or a gift letter.

5. Await the lender’s decision

Once your application is submitted, all you can do is wait for the lender to assess your borrowing risk and ability to repay the loan. If you have a strong application, then they will likely grant pre-approval and inform you of how long this is valid for. Remember to check the terms and conditions and that you can request an extension on your pre-approval if required.

Read our comprehensive guide to find out more about applying for home loan pre-approval.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: home loan, new purchase, first home, first home buyer, rent purchase, borrowing power, first home buyer, first home, pre approval, interest rate

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Important legal stuff

Lendi is the trading name of Lendi Pty Ltd (ACN 611 161 856), a related body corporate of Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence 442372). We will never sell your email address to any third party or send you nasty spam, promise.
# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 35 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 35% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
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