If you want a home loan, you must do this first

THE stress of buying a home can be exacerbated by not knowing exactly how much money you have to spend on your dream property purchase.

So tucking into your back pocket the exact limit you can borrow can remove any doubts before you start reading real estate lift-outs, scrolling homes online or attending open inspections and auctions.

Realestate.com.au’s executive director of financial services Andrew Russell said having conditional preapproval – an indication from your lender on what you’re eligible to borrow – can “help you skip ahead of the crowded competition”.

“You can be prepared so that you understand the properties that suit you and your lifestyle and you know that you can bid with confidence,” he said.

“That’s very important in the current environment where the lending landscape is changing and there’s a focus on responsible lending.”

■ Conditional preapproval

requires a customer to provide a lender or mortgage broker with paperwork including personal details, living expenses, deposit size and income and living expenses so the bank can clearly determine what they are willing to lend.

Be aware this is not formal approval yet — it’s a strong guide to what you can borrow.

■ Unconditional approval

is when a bank looks at all the paperwork relating to the loan application and property and can give the customer finance for that particular property.

The financial regulator, the Australian Prudential and Regulation Authority, has clamped down on banks dishing out investment loans and interest-only mortgages.

Aussie Home Loans’ chief executive James Symond said potential home buyers should speak to a mortgage broker to get preapproval to ensure they know where they stand.

“With a pre-approval, purchasers can avoid a potentially disastrous situation of making an offer…and then discover that funding the purchase cannot be secured,’’ he said. “In an auction, once the hammer falls, the successful bidder is locked in and com– mitted to providing a deposit and completing the purchase.”

Mr Russell said pre-approval can also help entry-level buyers who never signed up to a mortgage understand how much money they can borrow.

It may even require them going back to the drawing board if they cannot borrow as much as they hoped.

“If you think you can afford a $1 million property and really you can only afford something that is less than that it means you should change your outlook or start saving further,’’ Mr Russell said.