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How home loan pre-approval works
Pre-approval is a bank’s indication of how much it is willing to lend you, given before you have found a home. It helps you set a realistic budget and shows sellers you are serious. It is not a final guarantee, and the bank still has to approve the loan once you have signed an offer on a specific property.
What pre-approval actually is
When you apply, the bank looks at your income, your monthly spending, your debts and your credit record. It then tells you the approximate loan amount it could grant. Think of it as a trial run of the real application.
It is useful for three reasons. It shows you which homes are within reach, so you do not fall in love with something you cannot afford. It lets you act quickly when you find the right place. And it gives you time to fix problems, such as errors on your credit record, before they cost you a deal.
What it does not promise
Pre-approval is based on you, not on a particular property. The bank still needs to value the house or flat you want to buy, and it will lend only against what it thinks the property is worth. If the valuation comes in below your price, you may need to pay the difference or renegotiate.
Your situation can also change between pre-approval and the final application. A new job, a new store account or a missed payment can alter the answer. Banks have their own rules on how long a pre-approval stays valid, so ask yours.
That is why an offer to purchase normally contains a suspensive condition for bond approval. If the bank says no, the deal falls away without penalty to you. Read suspensive conditions explained before you sign.
Documents to prepare
Banks have to assess your finances before lending, and they will ask for proof. You will usually need:
- your ID, and often proof of address;
- your latest payslips, normally the last three;
- bank statements, normally for the last three months;
- proof of any other income, such as commission or rental income;
- details of your debts, such as vehicle finance, store accounts and credit cards;
- if you are self-employed, financial statements and tax records, which banks often want for a longer period.
Requirements differ between banks, so ask for a checklist when you apply. If you are buying with someone else, each person provides their own documents.
How to apply
- Check your credit record first. You can get a free credit report once a year, and you can ask each credit bureau. Fix mistakes before you apply. See how to improve your credit record.
- Work out your own budget. Use the affordability calculator so you know what you are comfortable paying, as well as what a bank allows.
- Apply with one or more lenders. You can go directly to a bank, or use a bond originator who sends your application to several banks. Our guide explains what a bond originator does.
- Compare the offers. Look at the interest rate offered, the loan amount, any fees and whether the rate is fixed or variable.
- Keep your finances steady. Avoid new credit and large purchases until the home is transferred. Ask each lender how its credit check is recorded before you apply to several.
Pre-approval and your deposit
A larger deposit generally helps your application, because the bank lends less against the property. A smaller loan is usually easier to obtain. See how much deposit to buy a house.
Remember that the bond is not the only cost. You also pay transfer costs, bond registration costs and, depending on the seller, transfer duty. The transfer costs calculator adds these up.
What to do next
Gather your documents, check your credit report and apply. Once you have an indication, set your search limit slightly below it, so that you keep room for the costs of owning a home. Then search properties for sale in your range, and read the first home buyer’s guide for the steps that follow.
This article is general information for South African readers, not legal, financial or tax advice. Rules and rates change, so check your own situation with an attorney, your bank or a tax practitioner. Our property calculators can help you work out the numbers.