Navigating the home loan process can feel overwhelming. From saving up for a deposit to completing the paperwork and getting the right pre-approvals, it’s a lot to organise. There are also complex arrangements you need to get your head around. Understanding how long home loan pre-approval lasts is a key step in the journey to building home equity.

Home loan pre-approval helps you know your budget, giving you confidence when buying real estate. This article will guide you through the basics of pre-approval, how long it typically lasts, and ways to potentially reduce your loan size. Our aim is to help you feel more prepared and informed about what to expect in the home buying process.

What does the home loan process involve?

The home loan process involves several key steps. Here’s a simple breakdown to help you understand what to expect.

1. Initial research and comparison

Start by researching different lenders and their home loan options. Compare interest rates , fees, and features to find the best fit for your needs.

2. Submitting a loan application

Once you've chosen a lender, submit your loan application. This usually involves providing personal, financial, and employment details such as proof of identity, tax returns and payslips. Lenders use this information to calculate your debt-to-income ratio (DTI ratio) to determine your ability to repay the amount you want to borrow.

3. Pre-approval process

After reviewing your application, the lender may offer pre-approval. This gives you an idea of how much you can borrow, helping you set a budget for your property search. You'll get a pre-approval letter outlining the loan estimate, interest rate and terms.

4. Property search and making an offer

With pre-approval in hand, start looking for properties within your budget. When you find the right one, make an offer. If accepted, you’ll move on to the next step.

5. Formal approval and settlement

Submit the property details to your lender for formal approval. Once approved, the lender will prepare the loan documents. You'll sign these and proceed to settlement, when the property ownership is transferred to you.

This process typically takes between four to six weeks, but can vary based on several factors. The complexity of your financial situation, lender processing times, and how quickly you provide the necessary documents all influence the timeline.

What is home loan pre-approval?

Home loan pre-approval is an initial step in the mortgage process. A lender evaluates your financial situation to determine how much they're willing to lend you for a home purchase. Pre-approval is based on an initial assessment of your financial situation, including income, expenses, and credit history.

Types of pre-approval

There are generally two types of pre-approval: conditional and unconditional. Conditional pre-approval is more common. It means the lender has assessed your finances but still needs more information before final approval. Unconditional pre-approval is rarer. It means all checks are complete, and the lender is ready to approve your loan once you find a property.

Benefits of pre-approval

Pre-approval gives you a clear budget for your property search. It shows the home seller that you’re a serious buyer, which can be an advantage in a competitive market. It also speeds up the formal approval process once you find a property.

Limitations of pre-approval

Pre-approval is not a guarantee of final approval. The lender will still need to assess the property you intend to buy. Changes in your financial situation could also affect the final approval.

A home loan pre-approval can make the home-buying process smoother and give you more confidence when making offers. It’s a helpful step in your journey to owning a home.

How long does home loan pre-approval last?

Home loan pre-approval typically lasts between three to six months. Again, this timeframe can vary depending on the lender and your circumstances. Here are a few things to note about the length of pre-approval:

• Influencing factors: The length of pre-approval can depend on the lender’s policies. Some may offer a shorter or longer validity period. Changes in your financial situation, such as a new job or significant purchases, can also impact the duration.
• Keep information up to date : To maintain your pre-approval, ensure your financial information is current. This includes your income, expenses, and credit status. Any changes may mean updating your pre-approval details with the lender.
• Renewing pre-approval : If your pre-approval expires before you find a property, you can usually renew it. The renewal process may involve resubmitting financial documents and going through another assessment.

Knowing the duration of home loan pre-approval can help you plan your home search and manage your finances effectively. It’s a useful step to stay on track while looking for your new home.

Can I extend my pre-approval?

In many cases, yes. Or, as mentioned, you can renew your pre-approval. Extending or renewing home loan pre-approval is not uncommon. With all that’s required for a significant purchase like property, six months can pass quickly.

How to extend or renew pre-approval

Let’s take a closer look at what you can do if your home loan pre-approval lapses:

1. Contact your lender: Start by contacting your lender to discuss extending or renewing your pre-approval. They will guide you on what to update or resubmit.
2. Update financial documents: You’ll likely need to provide updated financial documents. This can include your latest tax returns, more recent payslips, bank statements, and any other relevant information.
3. Reassessment process: The lender will reassess your financial situation to ensure it still meets their criteria. This step is similar to the initial pre-approval process.
4. Impact on credit score: Extending or renewing pre-approval can involve another credit check. Frequent checks might impact your credit score, so it’s something to consider.

Extending or renewing pre-approval can help you remain financially prepared and confident in your property search. It’s a process that keeps you ready to act when you find the right home.

When pre-approval isn’t extended or renewed

Unfortunately, there are circumstances where extending or renewing your pre-approval isn’t possible. These include:

• Significant changes in financial circumstances : Your income may have decreased, you've taken on new debt, or your credit score has dropped significantly since the original pre-approval.
• Changes in employment : You've changed jobs or industries, especially if your new job is less stable or in a probationary period.
• Lender policy changes : Lenders can change their policies or lending criteria, which might affect your eligibility for pre-approval renewal.
• Market conditions : The housing market could change significantly, such as a sharp increase in property prices or changes in interest rates. In response, lenders might reassess their risk and decide not to renew pre-approvals.
• Expiry of pre-approval period : If too much time has passed since your initial pre-approval without any progress towards purchasing a property, lenders might require a new application.
• Inaccurate or outdated information : If the information you initially provided was inaccurate or has changed significantly, lenders might reassess your situation from scratch.
• Regulatory changes : Changes in lending regulations or government policies can also impact the ability to renew or extend pre-approval.

Be aware of these factors so you can plan accordingly and address any potential issues early on.

What to do if pre-approval isn't extended or renewed

If your pre-approval isn't extended or renewed, it can be disappointing. Here are some steps you can take if you find yourself in this situation.

• Review your financial situation: Identify any changes in your finances that might have affected your pre-approval. This can help you understand what needs to be addressed.
• Talk to your lender: They can provide insights into why your pre-approval wasn’t extended and suggest ways to improve your chances in the future.
• Improve your financial health : You could consider paying down existing debts, saving more for a deposit, or stabilising your income. Small changes can make a big difference.
• Explore other lenders: Different lenders have different criteria. Shopping around might lead you to a lender whose requirements you meet more easily.
• Consider getting advice: A mortgage broker or financial adviser can offer personalised guidance. They can help you understand your options and develop a plan to strengthen your financial position.
• Stay positive and patient: Finding the right home loan can take time. Use this as an opportunity to better prepare for the next application. With patience and persistence, can better equip yourself to secure a loan.

Facing a setback with pre-approval can be challenging, but it’s also a chance to reassess and come back stronger. Stay on top of things, take proactive steps, and keep your homeownership goals in sight.

How can I reduce the size of my home loan?

Buying a home is a big step, and it’s natural to feel overwhelmed by the financial commitment. Reducing the size of your home loan can ease some of that stress, making repayments more manageable and saving you money over time. Here are some practical ways to achieve this.

Save for a larger deposit

The more you save for a home deposit , the less you need to borrow. Aim to save at least 20% of the property’s price to avoid additional costs like lenders mortgage insurance .

First Home Guarantee

The First Home Guarantee helps eligible first-time home buyers purchase a home with a lower deposit. It can allow you to buy with as little as a 5% deposit without paying LMI. Check your eligibility and how to apply.

First Home Super Saver Scheme

The First Home Super Saver Scheme lets you save for a deposit using your super . You can make voluntary contributions to your super and withdraw them for your first home purchase. It’s a way to boost your savings through potential tax benefits.

Choose a more affordable property

Think about buying a property within your budget. Lowering your expectations slightly can reduce the amount you need to borrow. Consider using a home affordability calculator like MoneySmart’s mortgage calculator to help you figure out what you can afford.

Reduce other debts

You may want to pay off or reduce other debts before applying for a home loan. Lowering your overall debt can improve your borrowing capacity and help you secure a better loan deal.

Budget carefully

Create a detailed budget to manage your expenses. Cutting unnecessary costs and saving more can help you put more towards your deposit and reduce the loan amount needed.

Anything else to consider?

When pursuing home loan pre-approval, there are a few extra factors to keep in mind for fewer bumps along the journey:

• Understand your borrowing capacity: Knowing how much you can borrow is crucial. Pre-approval gives you a clear idea, but it’s wise to stay within your budget to avoid financial strain.
• Keep your finances stable: Lenders prefer stable financial situations. Avoid major changes like switching jobs or making big purchases during the pre-approval period. These can affect your approval status.
• Stay informed about interest rates: Interest rates can impact your loan repayments. Keep an eye on rate changes and consider how they might affect your budget. Fixed and variable rates offer different benefits, so choose what suits your situation.
• Be prepared for additional costs: Buying a home involves more than just the purchase price. Be ready for costs like stamp duty, legal fees, and inspections. Factoring these into your budget can prevent surprises later on.
• Get professional advice: Consider seeking advice from a mortgage broker or financial adviser. They can offer personalised insights and help navigate the complexities of home loans.
• Review your pre-approval regularly: Keep an eye on the expiration date. If your pre-approval period is close to expiring, review it with your lender. Being proactive can help you avoid delays and keep your home-buying process on track.

Final thoughts on pre-approval

Navigating the home loan process can be difficult, but knowing how pre-approval works can help. To stay prepared, ensure you understand how long pre-approval lasts and the ways to extend it. Keep your financial information current and explore ways to reduce your loan size to help ease some of the stress.

Finally, stay proactive and informed to ensure you're ready when the right property comes along. Your preparation today can set you up to achieve your goal of owning a home in the future.