You’ve put in the hard yards and saved enough for a house deposit, maintained a good credit score, and signed a stack of paperwork, so what comes next?
Conditional home loan approval
Conditional approval, also known as pre-approval, is where a lender provides an indication of how much they will let you borrow based on your current financial position.
But the approval is ‘conditional’, meaning the lender is not guaranteeing they'll give you a home loan - it is still subject to any number of conditions. Some of these may include:
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Providing further information and documentation including bank statements or pay slips dating back further than originally required, a valuation of the property you’re interested in, or a completed sale contract from the property purchase
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Setting a specific home loan limit that you can borrow up to
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Waiting to provide unconditional approval until after you’ve found the property you wish to purchase
While there is no guarantee you’ll be approved for the loan you ultimately apply for, conditional approval can provide peace of mind when you’re property hunting. This is because the process will give you a realistic picture of what you can afford and keep you on the track of properties that are feasibly in your price range.
It’s also worth noting the request for conditional approval will be recorded in your credit history, regardless of the outcome.
Unconditional home loan approval
There are no conditions attached when it comes to unconditional approval, meaning the lender has formally approved you for a home loan and there are no other conditions that must be met. This is generally done when you’re on the brink of purchasing the property.
By being granted unconditional approval, the lender has taken the time to formally assess your paperwork, finances, and loan application and decided to offer you a home loan based on the property you have identified as the one you intend to purchase.
Lenders are required to formally notify you in writing at the time your home loan approval becomes unconditional.
Don’t get caught out
Some home buyers can fall into the trap of assuming they have been granted unconditional approval when they have only been granted conditional approval. The risk here is that you could make an unconditional offer to buy a property, only to discover that you don’t have approval for a home loan as you thought. (Be warned, putting in an unconditional offer to purchase a property can be a risky move.)
It’s important to note that a loan cannot be formally approved until your lender has examined all documentation, evidence of your income and outgoings, and made sure the lender’s valuation of the property aligns with the price you’ve agreed to buy it for.
Finding your lender
If you're in the market for a home loan, the table below features some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Row Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.69% p.a. | 5.70% p.a. | $2,899 | Principal & Interest | Variable | $0 | $0 | 60% |
| Promoted | Disclosure | |||||||||||
5.79% p.a. | 5.83% p.a. | $2,931 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | |||||||||||
5.74% p.a. | 5.65% p.a. | $2,915 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | |||||||||||
5.84% p.a. | 6.08% p.a. | $2,947 | Principal & Interest | Variable | $250 | $250 | 60% |
| Disclosure |
Losing unconditional approval
While unlikely, a significant change in your financial circumstances following unconditional approval can result in you being denied a home loan. For example, if you were to lose your job, a bank will doubt your ability to service the loan.
You may also risk losing your mortgage approval if you are required to pay lenders mortgage insurance (LMI). This is insurance you must take out on behalf of your lender, generally if your deposit is under 20% of the loan amount. If you are subject to LMI, you must also be approved by the lender’s insurer. This means if both the lender and insurer consider your application and you are deemed to be of too great a risk, you may lose your unconditional approval.
Timeframes
Conditional and unconditional home loan approval doesn’t last forever, meaning it’s important to strike while the iron is hot.
Depending on the lender, both conditional and unconditional approval can typically last anywhere from three to six months. After this period has passed, you would need to re-apply if you were unable to find a suitable property.
Lenders typically offer between three to six months to allow you to satisfy their requirements for conditional approval before moving onto the unconditional approval stage.
Savings.com.au’s two cents
In a period where houses sell like hotcakes, conditional approval can be a great help in your home buying journey. By having it, you also get an accurate indication of how much you are able to borrow based on your financial circumstances. This can keep you on track in your house hunting, giving you a clear guide on what properties are in your price range.
It can also assist you in entering the property market ahead of other buyers who may not have such approval. Having conditional approval can show real estate agents and sellers that you are a ‘serious buyer’ ready to do business.
It’s important once you obtain unconditional approval, you maintain your strong financial position to prevent the unlikely scenario of losing unconditional approval and potentially your ideal home.
First published on January 2022
Image by Maria Ziegler via Unsplash.
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