When to Get Pre-Approved for a Three Bedroom Home

The best time to get a home loan pre-approval is before you start attending inspections for a three bedroom home. It tells you what you can realistically borrow, so you can shop with a clear budget.

If you are buying in Melbourne, a three bedroom house often suits a growing family or a couple who want space to work from home. The finance decisions you make early shape how comfortable the next few years feel. This article walks through timing, loan structure and a worked repayment example.

When Should You Apply for Home Loan Pre-Approval?

You should apply for pre-approval once you have a rough price range and before you make offers or bid at auction. Pre-approval is a lender's conditional indication of how much it may lend you, based on your income, expenses, debts and savings.

It is not a final approval. The lender still assesses the actual property, and your circumstances need to stay the same. A job change, a new credit card or a new debt can alter the outcome. Pre-approvals also expire after a set period, which varies by lender, so ask about the expiry date when you apply.

The amount you can borrow depends on more than your income. Our borrowing capacity page explains the factors lenders look at, and it is worth reviewing before you apply for a home loan.

How Much Deposit and LMI Affect Your Home Loan

Your deposit sets your loan to value ratio (LVR), and a higher LVR usually means a higher cost. If your deposit is under 20% of the property's value, many lenders charge Lenders Mortgage Insurance (LMI), which is a one-off premium that protects the lender, not you.

The trade-off is that LMI can be added to the loan, which means you pay interest on it. Waiting to save a bigger deposit can avoid LMI, but it also means more time renting and exposure to price changes in the meantime. Whether to buy sooner or wait depends on your savings, your rent and your plans.

If this is your first purchase, our first home buyers page covers the support that may be available to you.

Variable, Fixed or Split Rate: Which Suits a Three Bedroom Purchase?

A variable rate moves with the lender's decisions, a fixed rate stays the same for a set period, and a split rate divides the loan between both. The right mix depends on how much repayment certainty you need and how much flexibility you want.

Each option has a cost. Variable loans usually allow extra repayments and offset accounts, but your repayments can rise if rates go up. Fixed loans give predictable repayments, but extra repayments are often capped, and leaving the loan early can trigger break costs. A split loan spreads that risk, though you manage two balances. If you choose fixed, it is also worth knowing what happens at the end of the term, which we cover on our fixed rate expiry page.

A linked offset account sits against a variable loan. The money in it reduces the balance your interest is calculated on, while you can still access it. The trade-off is that some loans with offset accounts carry higher fees or rates, so compare the full cost.

Calculating Home Loan Repayments: A Worked Example

To estimate repayments, you need the loan amount, the interest rate, the loan term and whether you are paying principal and interest or interest only. Here is an illustrative example using a rate of 6.75% p.a.

Consider a buyer who borrows $600,000 over 30 years on an owner occupied home loan with principal and interest repayments. At 6.75% p.a., the monthly repayment is roughly $3,891. In the first month, about $3,375 of that goes to interest, so only around $516 reduces the loan.

Now suppose the buyer keeps $20,000 in a linked offset account. Interest is then calculated on $580,000 instead of $600,000. At the same 6.75% rate, that cuts the first month's interest by about $112, from roughly $3,375 to roughly $3,263. The buyer keeps access to the $20,000, but the saving only lasts while the money stays in the account.

The example is a guide only, because your actual rate will depend on your deposit, your lender and your loan features. You can test your own numbers with our mortgage repayment calculator.

Principal and Interest or Interest Only?

Principal and interest repayments reduce your loan over time, while interest only repayments cover just the interest for a set period. Interest only usually gives lower repayments at first, but you do not reduce the loan during that time.

When the interest only period ends, repayments switch to principal and interest over a shorter remaining term, so they are higher. For an owner occupied purchase, most buyers choose principal and interest to build equity steadily. Interest only is more often used for investment loans, and its tax treatment should be discussed with your accountant.

Why Use a Broker to Compare Home Loan Options?

A broker can compare home loan options from many lenders and match them to your situation, rather than you checking each lender yourself. That includes comparing rates, fees, features and policies on things like deposits and income types.

A low advertised rate is only one part of the picture. Annual fees, offset access, redraw and repayment flexibility all affect what a loan costs you. A broker can walk you through these trade-offs in plain English, and explain which lenders may suit your circumstances. You can read more about our home loans service, or meet the OVM Finance Group team who will look after your application.

Buying a three bedroom home is a big step, and good preparation makes the decision clearer. Call one of our team or book an appointment at a time that works for you, and we will help you work out your budget, compare lenders and apply for pre-approval with confidence.

Frequently Asked Questions