What does conditional home loan approval mean?

Conditional home loan approval is just that - conditional. It acts as a signal to yourself, real estate agents, and your lender that you're a qualified buyer capable of purchasing a property. 

Though, being conditionally approved for a mortgage isn't a guarantee that you'll get one. Rather, it's an indication that you've handed over your details to a lender and that lender has agreed that, on the face of it, you're a suitable borrower.

Want to know your borrowing power? Use our free Borrowing Power Calculator

What does it mean to be conditionally approved for a mortgage?

Conditional home loan approval - often called pre-approval - means a lender has reviewed your financial situation and determined that, in principle, it's willing to lend to you.

It isn't a promise that you'll get a mortgage, but it does give you a strong indication of your borrowing power and home loan prospects. This means you can confidently plan your homebuying budget and narrow your search to properties within your price range.

"Many borrowers assume that conditional approval means they are guaranteed a home loan, but it's not a final commitment from the lender," Mortgage House Australia CEO Ken Sayer said.

"It simply indicates that, based on the information provided, they are likely to be approved, pending further checks, such as property valuation and additional financial verification."

Once you've found the right home, you'll need to apply for unconditional approval - the final step before securing your loan. At this stage, the lender will take a deeper dive into your finances and assess the property itself before deciding whether to approve your loan.

Most conditional approvals come with an expiration date, typically 90 days, and you'll need to find a property within that time frame or reapply.

How to get conditional mortgage approval

Getting conditionally approved is a straightforward process. Most lenders allow you to apply online, while mortgage brokers can also handle the process on your behalf.

Read more: How to get pre-approval for a mortgage

Steps to getting conditional approval:

1. Submit an application
   Online or through a broker.

2. Provide key documents
   Lenders typically require:

   • Proof of income

   • Details of expenses, assets, and debts

3. Lender assessment
   They will evaluate factors such as:

   • Income stability and employment

   • Credit score and existing debts

   • Savings and spending habits

"To strengthen their application, borrowers should ensure their credit file is in good shape, reduce unnecessary debt, and demonstrate consistent savings," Mr Sayer said.

"Having all required documents - such as payslips, tax returns, and bank statements - ready can also speed up the process."

When should you apply for conditional home loan approval?

You can apply for mortgage pre-approval whenever you'd like, but it will likely be most impactful to do so when you're actually considering purchasing a property.

"Pre-approval should be the first step once a borrower is serious about buying," Mr Sayer said.

"It gives them a clear budget, increases their credibility with sellers, and helps them act quickly when they find the right property."

Why bother getting mortgage pre-approval?

There are two significant reasons you might consider getting conditional mortgage approval before you begin to seriously shop for houses.

1. Surety on your financial position and budget

Without pre-approval, it's easy to overestimate or underestimate your borrowing power. Pre-approval ensures you're searching for homes within a realistic budget, helping you avoid wasting time or setting yourself up for disappointment.

2. Real estate agents and sellers may take you more seriously

In a competitive market, pre-approval can give you an edge. Sellers and real estate agents are likely to prioritise offers from pre-approved buyers because it reduces the risk of financing issues delaying or derailing the sale.

Considering applying for conditional home loan approval? Check out these low-rate offered from lenders who pre-approve:

Important Information and Comparison Rate Warning

What to be wary of when getting pre-approved for a home loan

For all its positive aspects, there are a few drawbacks to getting conditionally approved for a mortgage. Though, most of these are easily outweighed by the benefits of being pre-approved.

Conditional home loan approval can impact your credit score

Your application for conditional home loan approval will likely be recorded on your credit report. This isn't an issue if you're applying through a single lender.

However, applying for pre-approval through multiple lenders at the same time or in quick succession will probably leave a mark on your credit history. If multiple lenders reject your conditional approval application or offer terms you dislike, future lenders may see you as a higher-risk borrower.

See also: How does home loan pre-approval affect your credit score?

Pre-approval is conditional and has an expiration date

Another downside to getting conditionally approved for a home loan is that the answer you get now - hopefully a resounding 'yes' - mightn't be the one given when you apply for unconditional mortgage approval.

"Changes in employment, additional debt, or missed payments can affect final approval," Mr Sayer said.

"Borrowers should also be mindful of the pre-approval expiry date."

Conditional approval might not hold up at auction

Because conditional approval isn't a final guarantee, bidding at auction can be risky. After all, the lender mightn't agree the property is worth what you've promised to pay for it or it might not meet their lending criteria.

There is no 'subject to finance' clause when it comes to auctions. If you win the bid and fail to pay for the property, the deposit you have to put down upon winning will likely be confiscated, and the seller could even take you to court over the matter.

Though, some lenders do offer unconditional approval subject to a buyer winning at auction. Bendigo Bank-backed Tiimely Home can run an automated valuation on eligible properties, allowing homebuyers to bid at auction knowing that, if they win, the property has already been given the green tick by their lender.

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