Conditional vs Unconditional Home Loan Approval

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on January 18, 2022 Fact Checked
Conditional vs Unconditional Home Loan Approval

Eager to take a bite of the property market? Before you dive right in, it’s important to maximise your financial position and get your ducks in a row to increase your chances of securing home loan approval.

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?

In this article, we’ll uncover:


Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Lender

Variable
More details
UNLIMITED REDRAWSSPECIAL OFFER
  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
UNLIMITED REDRAWSSPECIAL OFFER

Smart Booster Home Loan Discounted Variable - 2yr (LVR < 80%)

  • Fast turnaround times, can meet 30-day settlement
  • For purchase and refinance, min 20% deposit
  • No ongoing or monthly fees, add offset for 0.10%
Variable
More details
AN EASY DIGITAL APPLICATION
  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
AN EASY DIGITAL APPLICATION

Neat Variable Home Loan (Principal and Interest) (LVR < 60%)

  • No ongoing fees - None!
  • Unlimited additional repayments
  • Easy online application, find out if you're approved quick!
  • Redraw- Access your additional payments if you need them
  • Use the app to get loan insights to help you pay off your home loan faster
Variable
More details
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
100% FULL OFFSET ACCOUNTNO APPLICATION FEE OR ONGOING FEES

Low Rate Home Loan - Prime (Principal and Interest) (Owner Occupied) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
Variable
More details
NSW/VIC/SA METRO & INNER REGIONAL AREAS$5000 CASHBACK. T&Cs APPLY.
  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
NSW/VIC/SA METRO & INNER REGIONAL AREAS$5000 CASHBACK. T&Cs APPLY.

Variable Home Loan (Principal and Interest)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of May 26, 2022. View disclaimer.


Conditional home loan approval

Conditional approval, also known as pre-approval, is the highest-level of home loan pre-approval where a lender provides an indication of how much they will let you borrow based on your current financial position.

The approval is ‘conditional’ meaning the lender is not guaranteeing they will provide the home loan - it is subject to any number of conditions. These conditions can include:

  • Providing further information and documentation including bank statements dating back further than originally required, pay slips, a valuation of the property, or a completed sale contract from the property purchase.

  • Setting a specific home loan limit that you can borrow up to.

  • 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 house hunting. This is because the process will give you a realistic picture of what you can afford, helping avoid house hunting stress and disappointment that may potentially lie down the track.

Unconditional home loan approval

There’s no strings 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.

By being granted unconditional approval, the lender has taken the time to formally assess all 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!

Home buyers can fall into the trap of assuming they have been granted unconditional approval when in reality, no such approval has been granted. 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 and therefore miss out entirely.

This is why 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 most significantly, your deposit. 

Losing unconditional approval

While highly unlikely, a significant change in financial circumstances following unconditional approval can result in you being denied for a home loan. For example, if you were to lose your job, a bank may 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). If you are subject to LMI, you must also be approved by the lender’s insurer. This means if both the lender and insurer read over 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 aid in your home buying journey. By obtaining conditional approval, you are provided with an indication of how much you are able to borrow based on your financial circumstances. This can aid you over the life of your home loan as it provides a clear indication of the requirements needed to service the loan and meet necessary payments. It can also assist you in entering the property market ahead of another buyer who may not have such approval.

It’s important to ensure 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 - something you have worked so hard for!


Image by Maria Ziegler via Unsplash.

Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered. Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site. Savings.com.au, yourmortgage.com.au, yourinvestmentpropertymag.com.au, and Performance Drive are part of the Savings Media group. In the interests of full disclosure, the Savings Media Group are associated with the Firstmac Group. To read about how Savings Media Group manages potential conflicts of interest, along with how we get paid, please visit the web site links at the bottom of this page.

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Jacob Cocciolone joined the Savings team in 2021 as a Finance Journalist. Driven by a passion for keeping Australians up to date with the latest financial news and trends, his areas of interest include financial technology, investing, property and motoring.

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