Home loan pre-approval is when a lender agrees to lend you an agreed amount of money to help you purchase a property, subject to conditions being met. Pre-approval allows you to have confidence while house hunting or putting an offer on a property, because you’ll know if you’re eligible for a home loan and how much you can potentially borrow.
However, pre-approval is not a guarantee of finance for your loan, rather it is a way to indicate if you're eligible for the mortgage products offered by the lender.
There are two types of home loan pre-approval - conditional and unconditional.
Conditional approval is type of mortgage pre-approval that gives potential buyers an indication on how much the lender will let them borrow. This is not a guarantee, and formal approval will depend on more conditions being met.
On the other hand, unconditional approval (also called final approval) is when a lender formally approves your loan application for an agreed property up to a certain amount.
Before you start house hunting or make an offer on a property, it's recommended you get pre-approval so you have security knowing you’ll be eligible for finance.
Pre-approval is the best indication that your lender deems you an acceptable candidate for a home loan (up to a certain amount), and is viewed favourably by sellers when you make an offer. It shows you're serious about buying the property, and reduces the risk of backing out of an offer due to no financial support.
We recommend getting a “full assessment” pre-approval to give you a more accurate answer to the question "do I qualify for a home loan?" than a system generated pre-approval.
If you get a full assessment pre-approval, you are more likely to get a quick mortgage approval later.
Be sure to clarify with your lender which type of pre-approval they offer, so you know where you stand when you go house hunting.
The online pre-approval application process is straight forward and can be done in a matter of minutes. When applying for pre-approval with loans.com.au, all you need to do is complete an online form, detailing your loan requirements. We don't require supporting documents for pre-approval unless you're self employed, and will only require proof of income documents prior to formal approval.
Your details and loan information will be assessed against lending criteria, and a lending manager will look at your credit report and make sure that you have the credit profile they're looking for.
There two types of pre-approval you can get, system generated and full assessment. Both are summarised below.
With a system-generated pre-approval, you submit a full application and upload some supporting documents. Unlike the full assessment approval, the supporting information is not assessed by the lender's credit experts.
This kind of easy home loan pre-approval can be received very fast, sometimes immediately, but it will have a lot more conditions that need to be met and it also relies entirely on the information you have entered into the system or told the lending expert, which has yet to be validated.
It can be unreliable, so you shouldn't make an unconditional offer on a home on the strength of a system-generated approval.
This is where the lender’s credit experts do a full assessment including looking at the documents you supplied and getting a credit check from an independent credit agency. The lender will talk to you and ask you questions about anything they want to clarify and will potentially ask for more information on your finances.
Once they are satisfied with the information you have provided, they will give you a pre-approval, subject to an acceptable valuation of the property you plan to buy, and to no material changes in your financial circumstances.
This type of pre-approval will take a few days to be issued but it will save you a lot more time when you eventually come to seek final approval of the loan. It means that your lender has invested significant effort in assessing your financial position and is still willing to proceed to the next step.
If you're about to begin seriously looking for a new home, or you're thinking about putting in an offer for a property, then it's a good time for you to get home loan pre-approval. This way, you’ll know if you’re eligible for a home loan and can confidently bid or negotiate knowing what you’ll be able to afford. It will show sellers you're serious about buying the property and that it's unlikely you will need need to withdraw your application because of denied financing.
Before you submit an online pre-approval application, you can use our home loan repayment calculator to get an estimation on what your repayments might be, or use our borrowing power calculator to get a quick estimate on your potential borrowing capacity.
Congratulations, you've been pre-approved for a home loan! Now what?
Depending on where you're at in the property buying journey will determine your next step. If you're starting to look at properties, you can now go to inspections and search for homes that are within your budget, and stress less about being approved for finance. If you're a little further along in the process and have found your dream home, you can make an offer you know you can afford, and sellers will be confident you'll be approved for finance.
It's important to note pre-approval is not formal approval, and does not guarantee finance.
Applying for pre-approval will also impact your credit score. Each time you apply, the lender will run a credit check on you. This will stay on your credit file, and if you have a lot of credit checks, it can reduce your credit score. This is because numerous inquiries could lead lenders to regard you as a higher-risk customer, as it suggests you may be short on cash or getting ready to rack up a lot of debt. For this reason, it is a good idea to only apply for pre-approval from your preferred lender when you're ready to buy a property.
Yes, it is possible to be declined loan pre-approval. A common reason for being declined is your financial circumstances changing, such as losing your job, going part time or having children. Pre-approval also depends on the type of property. When you apply for pre-approval, you usually haven't found a property, so the lender cannot assess whether the property will fit its lending guidelines. For this reason, pre-approval will include a condition that it is “subject to a satisfactory valuation”. As well as looking at the price, lenders will often rule out certain types of property as unacceptably risky or undesirable on their books. These may include:
Be sure to ask your lender about the types of properties they accept before you make an offer on a property.
Did you know pre-approval expires? Pre-approval lasts approximately three months, depending on the lender, and once expired, you'll need to reapply.
Handy hint: Be sure to clarify with your lender which type of pre-approval they do, so you know where you stand when you go house hunting.
If your personal or financial situation changes between pre-approval and your final application, your lender will need to reassess your application. In some cases, it means you won’t get final approval. Changes that could affect your application would include losing your job, changing jobs, going part-time or becoming a contractor, having children, or taking out new debt.
Handy hint: It is a good idea to wait until your personal and financial circumstances are stable and you’re seriously considering a purchase before applying for pre-approval.
Pre-approvals typically last long enough for you to find a home or investment property if you are actively looking, but they don’t last forever. A few months is common. The expiry date is there because it is likely that your financial circumstances and the conditions in the property market will be different in a few months compared to now. Your pre-approval should clearly state when it is valid to.
Handy hint: Once your pre-approval expires, your loan eligibility will be assessed once again and a credit check may also be requested. If possible, line up a few potential properties to inspect or make an offer for so that the chance of failing to buy before the approval expires is reduced.
When you apply for pre-approval, you usually haven’t found a property, so the lender cannot assess whether the property will fit its lending guidelines. For this reason, pre-approval will include a condition that it is “subject to a satisfactory valuation”. As well as looking at the price, lenders will often rule out certain types of property as unacceptably risky or undesirable on their books. These could include:
Handy hint: Be sure to ask your lender about what type of properties they don’t accept before you make an offer on a property.
Each time you apply for a formal pre-approval, your lender will run a credit check on you. These credit checks stay on your credit file, and if you have a lot of credit checks, it can reduce your credit score. This is because numerous inquiries could lead lenders to regard you as a higher-risk customer, as it suggests you may be short on cash or getting ready to rack up a lot of debt. For this reason, it is a good idea to only apply for pre-approval from your preferred lender, instead of applying to multiple lenders.
Handy hint: Most sellers are keen to lock in the sale, so if you can show them that you are well on your way to obtaining finance, it can give you an advantage over other buyers who haven’t got pre-approval.
At loans.com.au we make buying your home simple. We offer personal service from our Australian-based lending managers who are on call to help you with every step along the way buying your home.
Simply fill out your application online by entering some of your details, or chat to one of our friendly lending specialists over the phone and they can complete your application for you.
After your application is complete, use our system we call onTrack on your desktop or device to add your documentation such as payslips and bank statements, and track the progress of your application.
3. Speak to specialist to get preliminary approval
You will then have an appointment with one of our lending specialists to organise your preliminary approval of your loan, and help you progress through the home loan approval process through to settlement as quickly as possible.
4. Signing purchase document & loan document
Check onTrack to received your final approval, mortgage documents and loan agreement. You must sign these and return them in to onTrack to progress to settlement
Your loan will settle and you'll start saving with your new low rate, and get your keys to your new dream home!
6. Access your account
Once settlement is complete, we will send your login credentials to start managing your payments in the Smart Money app.
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
At loans.com.au: Online home loans and car loans , we've made the home loan pre-approval process easy. Complete an online application form in less than five minutes, and one of our experienced lending managers will review your application and you'll know your approval status within 24 hours.
Many people use pre-qualification and pre-approval interchangeable, however there is a slight difference. Pre-qualification is the first step, where you will get an estimation on how much money you are qualified to borrow. Pre-approval is the next step, where the lender has agreed you may be a suitable loan candidate and have conditionally approved you.
Home loan pre-approval does not mean you will be approved for a home loan. To have the best chance of securing pre-approval, there are certain things to keep in mind. For example, as mentioned before, not changing jobs and having steady employment can increase your chances of getting pre-approval. Additionally, market forces outside your control, such as Reserve Bank cash rate changes, can also affect your ability to get pre-approved. Unsuitable properties, such as those mentioned above can also mean your application is rejected.
Generally speaking, for a basic scenario where the clients have prepared their supporting documents, a home loan approval can be sought in as little as 3 to 5 business days.
Conditional approval is a statement from a lender that you will be approved for a home loan up to a certain dollar limit, provided your application meets pre-agreed conditions.