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What Is A Pre-Approval?

Property that fits all your criteria and desires can be difficult to find. Even once found, you still need to have the finances to secure it. This is especially true at auction.

You may have found a great place, yet find it difficult to secure financing in time.

What is a pre-approval?

  • Your loan has been pre-assessed by a bank.
  • The pre-approval is valid for 3 – 6 months.
  • You know your maximum purchase price.
  • You know that your personal situation meets their lending criteria.
  • The bank has not yet confirmed that they will accept your property as security.
  • The pre-approval may be subject to you meeting particular conditions.
  • Not all pre-approvals can be relied upon.

Banks and lenders offer a number of different types of pre-approvals. They range from a simple two minute online application, to a formal document, written and signed by you and the bank.

If you are in the market for a home loan pre-approval, we can help. Contact us on 1300 889 743, or you can enquire online and one of our mortgage brokers will call you back.

Why should you secure a formal pre-approval?

Securing a formal pre-approval is the only way to make sure you can negotiate confidently with property sellers, or at auction. Without a signed letter, some sellers and real estate agents will not accept your offer, as they can not guarantee you will obtain the necessary finance.

Pre-approval is not necessarily a guarantee of financing, and there are a number of banks and lenders who tend to be unreliable. You can find out more on our page about how reliable your pre-approval is.

What does the approval process involve?

  • Complete and sign our short application form.
  • Provide evidence of your income, savings, and debts such as credit cards and other loans.
  • We will complete a preliminary assessment and recommend several suitable lenders and loans.
  • We will lodge your application with the lender that you have chosen.
  • The lender will complete an assessment of your situation and provide their pre-approval.

As a mortgage broker we can apply to more than one bank and lender, and we know their pre-approval policies. Our brokers will know which banks and lenders actually assess the home loan application BEFORE they give you a pre-approval letter.

Our page on preparing to apply for a home loan will guide you towards increasing your chance of mortgage pre-approval.

What should I do once I have submitted my application?

Once you have submitted your home loan application you should make sure it has adhered to bank policy. To do this you can ask your mortgage broker or the lender;

  • Did the credit department accept my application?
  • Has the lenders mortgage insurer (for lenders mortgage insurance, or LMI) approved my application?
  • What are the conditions of approval?
  • Can I satisfy the conditions before I make an offer on a property, or go to auction?
  • Can I bid at auction in the knowledge my loan will be approved?

Please be aware that interest rates and lending policies are subject to change. If they do, even a formal pre-approval may no longer be vaild. Be sure of current rates and policies before going to auction, preferably the same day, or as close as possible. The lenders will most likely not notify you of this unless you ask.

To find out more about this you can see our page on bank policy and lender guidelines, or contact us here at the Home Loan Experts. You may enquire online, or call and talk to one of our specialist brokers, on 1300 889 743.

How can it help me?

If you know approximately how much you can borrow, you can make sure you look within an affordable price range. Once you have found the right home, you can go ahead and make an offer or go to auction. You can be confident that you have the money to purchase.

Furthermore, the closing period of your loan is shorter as you do not have to wait for the bank to go through the entire loan application process.

This not only means you can close on the property sooner, but also that sellers are more likely to say yes. This is because you are more likely to obtain finance quickly, and the purchase process will be smoother.

What makes a good pre-approval?

For a reliable pre-approval you need it to be formal, written and signed by the bank or lender. The lender will have assessed your loan application, and checked off as many of the banks loan conditions as possible.

The more conditions for your pre-approval, the more the bank has to check. They will not approve your loan until they have done these checks!

You should make sure;

  • The bank or lender accepted your loan application after assessing your financial situation. This is important!
  • There are less conditions to check off on your pre-approval. If there are things the bank has yet to confirm, ask them to confirm them first!
  • The pre-approval is for more than you intend to spend on a property. This means you don’t have to apply for a new pre-approval if you decide to increase your budget.

What should I avoid?

Avoid non-formal, non-written applications. This includes fast thirty minutes-or-less online, or phone applications. These have far less guarantees, and will come with many conditions that you must fulfill at a later date.

Generally these are used by the banks and lenders to produce sales, not to offer reliable pre-approvals.

Avoid lenders that will not assess your loan application in the pre-approval process. Do not forget, unless the lender gives you an unconditional approval, they are still under no obligation to loan you money.

Conditional approval vs final approval. What is the difference?

Unlike a conditional approval, a final or unconditional approval is given once all the banks loan conditions have been met. This is the final guarantee that you will receive finance for a property.

A bank will only decline a final approval if they find a discrepancy that has been completely missed or they have reason to suspect something like fraud.

Once you have won at auction, or your offer has been accepted by private sellers, you may have a one to three week grace period to get your finances and deposit in order. During this time you can check with your lender and make sure they will honour the agreement.

Even if you do not have this grace period, contact the bank and make sure they are still financing your loan. If you have not already done so, you can ask for your final approval at this time.

How can I get pre-approval?

If you are in the market for a home or investment property, and would like to know more about home loan pre-approvals, you can talk to us.

Our brokers are specialists in bank lending policies, and know how each bank treats different loan applications. You can enquire online, or call us on 1300 889 743.

  • Paisley

    My loan was pre-approved for 400,000 a month ago. Now, I’ve found property worth 430,000. Can I have my approval extended to 430,000?

  • Hi Paisley,

    You could approach with your lender for an extension. If it determines that you can afford the loan then your pre-approval can be increased. However, if that is not possible, you might want to consider some other lender who could approve a higher amount for you.

  • Joshua

    Hi, I want to buy my first home with the help of a mortgage at 95% LVR + LMI. I have $15k in shares and $5k cash, property value is $450k. Only 4% gen savings though. Help!

  • Hey Joshua,

    The best option would be to wait until you save another 1% and meet the 5% genuine savings requirement. We have a few lenders in mind that may be able to help you. Please call 1300 889 743 to speak about this with an expert mortgage broker.

  • Frederix

    What’s the difference between conditional approval and pre-approval?

  • Hi Frederix,

    Pre-approval and conditional approval are both approval under certain conditions, however, pre-approval usually comes before you even find a property. Conditional approval can be given after you’ve found the property you want to buy, after which you’ll have to meet the given conditions to get final or formal approval.

  • gardner

    Hi, what would be the max term that is allowed for a fixed rate right now?

  • Hey gardner,
    It used to be 15 years but it’s 10 years right now. However, you can fix for up to 10 years and then extend your fixed rate by 5 years at the end of the fixed term if you want to fix for 15 years. However, this will depend on the bank’s policy at that time.

  • Blair

    Can I use income from my previous job to help me with my home loan? Just turned self employed so don’t have much evidence of income.

  • Hey Blair,

    Yes, you can, however, as a general rule you must meet the following criteria:
    – Your business must be in the same line of work as your last job.
    – Your business must be less than 18 months old.
    – You must show that your business is currently trading.
    – Ideally, your business should be in a service industry with low expenses.
    – You must be borrowing less than 80% of the value of your property.