What is conditional pre-approval for a home loan?

Home loan pre-approval, also called ‘conditional approval’, is a vital step in the home-buying journey. It occurs when a financial institution agrees to lend you, the borrower, an agreed amount to purchase a property, subject to you meeting certain conditions.

Conditional approval allows you to go property hunting, happy in the knowledge that you can put in an offer (up to the pre-approved amount). With pre-approval, you will know exactly how much you can borrow, making it easier to submit an offer to buy a home in confidence.

What is conditional approval?

Conditional approval is an indication of your eligibility for a home loan.

That means it’s subject to you meeting the conditions set out in the approval, which usually include, but may not be limited to:

Proof of employment over a specified minimum time
Proof of income if you’re self-employed as a contractor, freelancer, or small business owner
Tax returns over a specified period
A qualifying credit score
The property is ‘subject to valuation’, meaning the house must meet the lender’s size, state of repair, or location guidelines.

The lender could reject your loan application if you fail to meet these conditions. Some lenders may be less or more strict during the conditional pre-approval stage. It’s important to be truthful on your loan application and not embellish any details.

Conditional vs. unconditional approval

Unconditional approval, also known as ‘final approval’, happens when a lender formally approves your application to buy a property up to the agreed amount. You typically apply for unconditional approval after your offer on a home is accepted. The lender reviews your application and conducts a valuation of the property. If there are no issues during this stage, the lender provides the loan contract for you to sign to make the mortgage official.

» MORE: How to get a home loan in Australia

Types of conditionally approved offers

Lenders in Australia use two methods when assessing home loan applicants and creating conditional approval offers:

System-generated pre-approvals are produced quickly and can be completed online.
Full assessment pre-approvals are completed by the lender’s staff. They can take a few days as they are more thorough.

System-generated approvals may be quick, but full assessments provide a more complete picture of how much you can borrow. A physical assessor will be able to pick up the reliability of your overtime, for example, which reflects the regularity of your income and your ability to repay the loan.

A full assessment can save you time when you seek unconditional mortgage approval later.

How to get pre-approved for a home loan

The best time to start the pre-approval process is when you’re about to start looking for a home. Pre-approvals generally last 60 to 90 days, giving you time to find a property that suits your needs. Lenders can extend the pre-approval, but it’s worth starting your hunt within that timeframe to avoid extra paperwork.

It’s essential to research the best offers available to find the most suitable mortgage. Compare features like fees, interest rates and eligibility requirements.

The pre-approval application process has become progressively more straightforward and less demanding with the steady advancement of digital technology. However, if you’re self-employed, the lender may want more detailed information about your finances before proceeding.

Once you’ve provided the relevant documentation, the lender assesses your ability to repay the loan and processes the pre-approval.

Every time you apply for pre-approval, your prospective lender will run a credit check to determine your credit score as an essential element of your eligibility. Multiple checks, especially with various lenders, may harm your score.

» MORE: What affects your credit score?