How much should you get pre approved for?


Every bank has a different method for calulating how much they are willing to lend to certain applicants depending on the type of income and how much each applicant earns. Add to this your own wants and needs for a property and there's a multitude of variables involved in picking a pre approval amount.

How much can you afford?

There are plenty of online calculators that will help you find out what your max borrowing power is but more importantly you should consider what it is you are comfortable paying each month. Consider that interest rates are currently at record lows and that if rates were to increase so will your mortgage repayments. Are you also planning a family or want to go overseas every year? How will a mortgage fit in with those plans? I suggest using a repayments calculator and setting the interest rate higher than the current rate to see what you could be up for in the future. Keep in mind though online calculators are a guide only.

How much is your lifestyle?

Lenders have a predetermined idea of what it costs for people with a certain income and amount of children to live each month. This is great but a one size fits all approach doesn't match everyone's weekly expenses. If you haven't already constructed a budget I would do this before considering applying for a loan. Go in to a lot of detail and account for every expenses you have to save heartache down the track.

What does your ideal house cost?

This can get tough. I'm terrible for this, my desires and bank account have conflicting views on what my ideal belongings should be. It is incredibly important though that your ideal property fits in with all of your other wants and needs. Will spending an extra $50,000 on a house instead of going on an annual holiday be what you want in the future? Once you have your limit sticking to it is highly recommended.

Once you've done all of the above you're just about ready to approach some lenders. I wouldn't advise approaching a lot of banks though as every time you go for a pre approval it will leave a mark on your credit file. You could use a broker however who can check your borrowing power with each individual bank before applying to ensure a smooth application and save your credit file.