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How to Boost Your Chances for Loan Pre-Approval

Securing a loan pre-approval is an essential step toward buying your first home. A pre-approval gives you a clear budget and shows sellers that youโ€™re a serious buyer. Here are effective strategies to strengthen your loan application and increase your chances of getting pre-approved.

Check Your Credit Score

Your credit score is one of the first things lenders evaluate when considering your loan application. A strong credit score shows lenders that youโ€™re reliable and capable of managing credit.

 

    • How to Improve It: Pay off any overdue debts, avoid applying for multiple loans or credit cards, and make payments on time. Consider checking your credit report to catch and address any errors.
    • Target Score: Aim for a score of 650 or above to improve your loan pre-approval chances.

๐Ÿ’ก Tip: Aim for a deposit of at least 10% to reduce LMI costs, or 20% to eliminate them altogether.

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Save for a Larger Deposit

    • Deposit Goals: Strive to save at least 20% to avoid Lenders Mortgage Insurance (LMI), as this reduces risk for the lender.
    • Savings Tips: Automate transfers to a high-interest savings account, reduce non-essential spending, and consider side income sources to build your deposit faster.

Reduce Outstanding Debts

Lenders assess your debt-to-income ratio, so keeping debts low is crucial. Pay down credit cards, personal loans, and other liabilities to show lenders youโ€™re financially stable.

    • Debt-to-Income Target: Aim for a ratio below 30% for better pre-approval prospects.
    • Prioritise Repayment: Focus on high-interest debts first, then tackle other loans or credit balances.

๐Ÿ’ก Tip: If you have multiple credit accounts, consolidating debts can help simplify repayments and reduce interest rates.

Demonstrate Stable Employment

Lenders prefer applicants with steady, long-term employment as it indicates reliable income. Having a consistent job history, preferably with the same employer, can positively impact your pre-approval.

    • Ideal Employment Period: Aim for at least six months to a year with your current employer.
    • Self-Employed Applicants: Prepare to show two years of financial records to demonstrate stable income.

Organise Financial Documents

A well-prepared application can streamline the pre-approval process and demonstrate your commitment. Gather and organise essential documents to present a clear financial profile to lenders.

    • Required Documents: Include recent payslips, bank statements, ID, and proof of savings.
    • Self-Employed Applicants: Prepare tax returns, business activity statements (BAS), and profit-and-loss statements.

๐Ÿ’ก Tip: Make digital copies of all documents for quick submission.

Avoid New Credit Applications

Applying for new credit can negatively impact your credit score and raise questions for lenders. Avoid taking out new credit lines or loans in the months leading up to your pre-approval application.

    • Credit Timeline: Wait until after securing pre-approval before applying for additional credit, as each application can cause a temporary score drop.
    • Hold Off on Large Purchases: Refrain from significant purchases that could deplete your savings or increase debt.

Calculate Your Deposit Goals

Use our Purchasing Power Calculator to estimate how much home you can afford and determine the ideal deposit amount based on your budget. This tool helps you plan effectively by matching your financial goals to the right property price range.

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