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When is your home loan application actually approved?

If you plan on applying for a home loan soon, there are a number of terms you'll need to know; which relate to approvals. In this article we break down the stages of home loan approval.

Conditional approval, Pre-approval or approval-in-principle

Conditional approval is no cost, no obligation approval from a lender to give you a loan. It gives you an indication of what you can afford to borrow. The approval is conditional subject to a number of factors, such as a property valuation, and will vary lender to lender.

You don’t need to get conditional approval in order to buy property, if you’ve found your dream home you can skip pre-approval and apply for a home loan. That being said, conditional approval is a useful step in your home buying journey. A popular analogy for conditional approval is that you wouldn’t walk into a store to buy something without money, so why go house hunting without home loan pre-approval.

Before giving you conditional approval, a lender will want to know your income, credit history, how much you have saved for a deposit, your living expenses, if you have any other debt, what you owe on your credit cards, how many assets you own such as other property, vehicles, share portfolio etc.

It’s a good idea to get conditional approval if you plan to buy at auction as you will know how much you can afford to spend when you’re going to open homes. The last thing you want is to go to offer only to realise you can’t afford to buy the home. The consequences for withdrawing from an offer at auction can be costly.                                    

You should consider getting conditional approval if you plan to buy at auction as it will give you confidence as a bidder and set a limit on your bidding power. Further, you will be able to narrow down your selection of properties to homes within your price limit.

This approval is usually valid for a period of up to 90 days so you should only apply when you are ready to buy a property. If you get conditional approval too early in your home buying journey, you might have to apply for it again at a later date.

Another reason to get pre-approval is that it will let real estate agents know you are serious about buying and can give you negotiating power and potentially speed up the buying process.

It’s also important to keep in mind that conditional approval won’t guarantee that you will have your final loan approved but it is certainly a good indication that you will.

Unconditional approval

Is a formal acknowledgement from a lender that they are willing to give you a loan to buy the property you have chosen. This is when your loan has been formally approved and you receive a letter outlining the terms of your loan.

Do not be misled by the name ‘unconditional’, most lenders will include a clause in their home loan contracts which says ‘we reserve the right to withdraw this offer at any time prior to settlement at our discretion’. This means that at any point up until settlement, the lender could withdraw their offer. There’s no way to predict every possible reason why this could happen but what you can do on your end is by being as transparent  as possible about your financial position when applying for your loan.

At Mortgage Choice we understand that the home loan process can be overwhelming and there are many other terms you need to learn along the way. That is where we can help. Your local Mortgage Choice broker can help explain any terms you don’t understand and guide you through the home loan journey from getting you ready to make an application right through to settlement.


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Posted in: Home loans

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