A first-time buyer’s guide to home loan pre-approval

As a first-time home buyer, you will likely need a home loan in order to purchase the house of your dreams. The bond pre-approval process is an important indicator of whether you will land a suitable loan.

We examine what it means to pre-qualify, how the pre-approval process works, and how bond originators can assist you.

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What does it mean to pre-qualify for a home loan?

Being pre-selected for a home loan means that a lender has ascertained that you are likely to qualify, based on a set of criteria. It prevents you from applying for finance once you have found a property, only to be turned down.

“Pre-approval gives you a sense of what you can afford,” says Alan Rubin, Ooba group executive and head of home loans. “It prevents unpleasant surprises. You don’t want to put in an offer on a home, thinking you can afford it, only to find you’re unable to fulfil the bond condition on the offer to purchase.”

Most home loan providers have pre-approval mechanisms on their websites or apps. Angela Glover, head of product at FNB secured lending, explains, "Credit providers will look at the information you provide, which will allow them to allocate a credit score to you.” 

Glover says it’s important to note that pre-qualification does not guarantee home loan approval.

“When you apply for a home loan, the bank does further checks on your income and expenses, and recent credit behaviour. They will also look into the property you want to purchase, before making a final decision,” she notes.

Your bank may pre-select you for a home loan without you having applied. Generally, this will be indicated on your online banking home page, or banking app dashboard. You can then use the process outlined on the site or app to apply.

The two elements in pre-qualification

Rubin says there are two elements in pre-qualification - your credit score and loan affordability.

Lenders examine your credit score to determine whether you are creditworthy. If your credit score is not good enough to qualify for pre-approval, you can take steps to improve it over time.

“Having a poor credit score is not like having a criminal record,” Rubin stresses. “It’s something that can be changed.”

Rubin says that around 42% of people who use the pre-qualifying tool on Ooba’s website have a poor credit record.

“It’s important to check your credit score before you even start the pre-qualification process. You will then know if you need to attend, for example, to a historical judgment on your credit record,” he says.

Lenders will also take your income and expenses into account to determine whether you can afford the bond repayments.

“When banks look at affordability, they put buffers in place,” Rubin says. “Even though you may qualify for the prime lending rate, the bank will apply a stress test, to determine whether you would still be able to afford the loan if the prime rate rose in the near future.”

If you can put down a deposit, this will work in your favour, as the loan amount will be smaller and your monthly instalments will be lower. This could assist you with pre-qualification. 

The role of bond originators

Bond origination is the start of the process of applying for a home loan.

Bond originators can help you get the best home loan deal by applying to multiple banks on your behalf. This allows you to compare rates, terms and loan amounts.

“Bond originators are paid a commission by the bank, so their service is free to home buyers,” Glover says.

A bond originator may be able to get you a better deal than would be offered to you by your usual bank. They can also negotiate with your bank to see if they can improve on an offer made by a competitor bank.

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