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When you’re looking for a home, one of the first steps you should consider is to get pre-approved for a loan. You can do this by asking your lender or mortgage broker for a home loan pre-approval. One of the common questions borrowers ask themselves and mortgage brokers is: “how much should I ask for?”
Often borrowers are concerned with asking for too much and being rejected, or not asking for enough and failing to get the home of their dreams.
You’ll be glad to know there are guidelines to find the right balance. The pre-approval process is designed to give you a clear indication of how much you can afford to spend on a property. It’s also a way to get conditional approval for an amount to borrow, which is a significant asset when you’re on the hunt for a house and making offers.
Advice from one of our home loan experts will give you the best guidance on finding the right amount to apply for. With their experience, they will clarify your borrowing limits and help you understand what you can comfortably afford to borrow.
One early step you can take is utilising a borrowing calculator. They’re only a rough guide, but borrowing calculators are a great place to start. They give you a rough indication of your limits.
Expect a few questions about your income and expenses. Next, the calculator will display a figure indicating how much a lender may be prepared to loan you, plus how much monthly repayments might be for that amount. You can then mention the results of the borrowing calculator when you start the journey with one of our trusted home loan experts. Calculators are great way to get you thinking about how much you can afford to borrow without placing yourself under too much stress with loan repayments.
Remember, your borrowing calculator is a generous estimation and often times a your application to a lender will be subject to a more rigorous analysis of your financial situation. Calculator formulas simply don’t employ the same level of detailed assessment of income, credit score and expenses as most lenders do.
What should my pre-approval process look like?
You might be looking to engage a mortgage broker for your home loan journey, so start by making a detailed outline of your financial situation. All of your financial commitments like groceries, electricity, rent or non-essential items that you’re purchasing will be considerations in your home loan application, so start now by organising your finances.
Simply export your bank statements for the last three to six months and break down your expenses into categories. Many banks offer an automatic categorisation, so check to see if you can automate this process to see exactly where your money is going. Generally, lenders will try to marry up what you have declared as your living expenses on your home loan application, with what your bank statements reflect.
This is important, because calculating what you can comfortably afford to borrow includes assessing your ability to afford the added costs of home ownership. Things like stamp duty, solicitor’s fees, property valuations, property inspections and insurance are common costs that many don’t consider before applying for a home loan.
Do your market research
Many of us have heard the famous saying from Ben Franklin: “By failing to prepare, you’re preparing to fail.” No where is this more true than in buying a home. The more property research you do the better.
Finding the properties that give you a balance of your lifestyle, budget and goals is no easy task, but you’ll thank yourself in the long run if you put in the hours to find suitable home options for you and your family.
Many websites provide in-depth reports about specific suburbs that give you fairly accurate price estimations, as well as sales histories for properties. Utilise these free tools to get an understanding of different suburbs, their demographics and available amenities as well as their affordability.
Yellow Brick Road advisers have access to specific property analysis tools like CoreLogic RP Data. Our experts can utilise these tools to give you up-to-date market information like median house prices, rental yield, growth rates, suburb trends and demographic insights. Don’t hesitate to reach out to one of our home loan experts and ask about how we can guide your property research.
Avoid multiple pre-approvals
It may be tempting to try and give yourself as many options as possible when you’re trying to buy your first home. Unfortunately, many lenders will view too many pre-approval applications in a short period of time, unfavourably.
This is why it pays to have the guidance of a mortgage broker. With their experience, they can perfect your pre-approval application on the first attempt. With access to numerous lenders, brokers give you more options and find the best solutions for your circumstances.
If you’re concerned about your borrowing power and want to nail your pre-approval application, reach out to our experienced home loan experts today.
