When is your home loan application actually approved?
Conditional approval or pre-approval will allow you to start house shopping but you will only receive your funds once you have the final unconditional approval in your hand.
Understanding the differences between conditional vs unconditional home loan approval will help you avoid heartache when it comes time to sign the Contract of Sale.
Conditional vs unconditional
An unconditional loan approval gives you the piece of mind that the bank has accepted the property you’ve found, that you’re in a position to sign the Contract of Sale with the seller and you’re on your way to settlement.
A conditional loan approval is the next best thing and the highest form of guarantee that a lender can provide prior to formal approval.
What is a pre-approval?
Your home loan application is pre-approved or conditionally approved once you submit your loan documents to your bank or mortgage broker.
The strength of your application will be assessed, taking into account such areas as your income and employment situation, your asset to debt ratio, your living expenses and your credit file. They will generally ask you to provide:
- Your last two payslips
- Your most recent group certificate or tax return
- Your last 3 months bank statements
- A copy of the Contract of Sale (don’t sign yet!)
If the bank is satisfied, they will pre-approve your home loan and set your borrowing limit subject to:
- You finding an eligible property.
- Your situation situation remaining relatively unchanged when it comes time to applying for unconditional or formal approval.
Need an approval in principle?Call 1300 889 743 or fill in our free assessment form today to speak with one of our mortgage specialists.
Can I start shopping around after indicative approval?
Yes, you can start looking for a property once you receive pre-approval because the bank is satisfied with your strength as a borrower. It also:
- Presents you as a serious and genuine buyer to real estate agents and vendors (sellers).
- Gives you more confidence when making offers on private sales.
- Lets you know your borrowing limit while when making an offer or bidding at auction.
However, there are a couple of things to keep in mind.
3 month time limit
Most lenders have an expiry date on pre-approvals; usually 90 days. Depending on the lender, a valid pre-approval of 110 days is also available.
So take your time but don’t wait too long.
The reason is that your situation can change in 3 months, including changing jobs or taking on new debt such as a credit card.
Don’t change your situation
On that note, try to stay in your job, avoid applying for more debt or make any major changes to your financial situation within those 3 months.
Otherwise, you may find that you’ll need to complete an entirely new application or could be knocked for a home loan completely.
Don’t buy to your borrowing limit
If you’re pre-approved for $1 million, don’t look to buy a $1 million property.
Your borrowing limit is an indication only.
Try to stick to standard properties
Be weary of choosing unusual or non-standard properties like inner city apartments, bushfire prone properties, flood zone properties or heritage-listed real estate.
Most banks see these properties as high-risk because they can be difficult to sell in a buyers’ market, or in general, should the bank be required to do so if you default on your mortgage.
Typically, you’ll have a much better chance at formal approval if you’re buying a standard residential home.
Do you have your conditional approval but aren’t sure whether the bank will accept your property?
What if I don’t get a pre-approval?
Sit down with your mortgage broker and discuss with them how you can resolve or mitigate some of the risks in your application.
It could just be a matter of choosing another lender rather than trying to find a property they will accept!
What is an unconditional approval?
You get an unconditional approval when your home loan has been fully approved.
It indicates that your application is not subject to any terms and conditions and the lender has decided that there are no unresolved issues.
In other words, your lender is satisfied with your financial situation, your deposit and Loan To Value Ratio (LVR), and the property you’re buying.
What happens after unconditional loan approval?
- Decide on home ownership: You can buy the property as either a sole owner or with a co-borrower as either joint tenants or tenants in common
- Sign the loan offer documents: You’ll get this in about a week; be sure to check for errors, get mortgage broker and legal advice and return the signed docs to the bank as quick as you can.
- Organise building insurance: Building insurance can vary depending on whether you’re buying a house, unit/townhouse or vacant land but your mortgage broker can provide suggestions.
- Apply for grants: This includes the First Home Owners Grant (FHOG) and other concessions you may eligible for.
- Complete a final check of the property: Make an appointment with the real estate agent and ensure the property is in the same condition as when you signed the Contract of Sale.
- Settlement: You don’t even have to attend the meeting – let your conveyancer take care of it.
Check out the home buying process page to learn more useful tips on the steps the buying a home.
Does Unconditional Home Loan Approval Expire?
Unconditional home loan approvals can expire, a fact that’s particularly relevant if there’s a delay in your property purchase process or if your financial circumstances change. This policy, often determined by the Lenders Mortgage Insurance (LMI) provider, requires the loan to be advanced within a certain period from the approval date, typically six months. If this doesn’t happen, a re-assessment of your loan application may be needed.
It’s always wise to seek advice and explore all available options, including consulting with mortgage brokers who specialise in these complex situations. They can offer insights into the best course of action.
Can A Loan Be Denied After Unconditional Approval?
Yes, the bank can always renege on unconditional approval, even up to the day of settlement, though it’s quite rare for this to happen. Essentially, unconditional approval means the bank has agreed to lend you the money based on the information they had at the time; however, there are a few circumstances under which a bank might reconsider this decision.
- One of the main reasons a bank might withdraw an unconditional approval is if they uncover fraudulent activity related to your application. This could involve discrepancies in the information you’ve provided or fraudulent activity detected on your financial documents.
- Another reason could be if the bank discovers something significant that was missed during the initial loan assessment process. This might involve a critical piece of information about your financial situation that wasn’t correctly evaluated or was overlooked.
It’s important to note that banks issuing unconditional approval have already thoroughly reviewed your financial situation, credit history, and the property’s value (if applicable). Instances of withdrawing unconditional approval are not common and usually involve issues that were not apparent during the initial review.
To safeguard against any potential issues arising after receiving unconditional approval, it’s wise to maintain open communication with your lender. Promptly inform them of any changes in your financial situation, and ensure all information provided during the application process is accurate and complete.
Further negotiations after a formal approval
Not satisfied with the interest rate or fees on your loan document?
Tweaking the loan agreement is possible!
However, approvals work on a case-by-case basis and depend on what you are negotiating on.
Further negotiations, after the lenders have released an unconditional approval letter, may result in the lenders reassessing your mortgage application and releasing a new unconditional letter.
All of this adds more time to the settlement process so your solicitor should communicate this clearly to the vendor their legal team.
Of course, you’re best spending the time to make sure the home loan is right for you and you’re getting a fair deal.
You’ll potentially be paying the mortgage for many years to come!Call 1300 889 743 or fill in our free assessment form to speak with a mortgage mortgage broker about getting pre-approval.