Applying for conditional approval

When looking to buy a home or investment property, it can be hard to know what type of properties and locations are in your price range without knowing the amount you’ll be able to borrow.

Getting home loan conditional approval (also known as home loan pre-approval or approval in principle), can be one of the first steps in house hunting. It allows you to search for a property with greater confidence that should you find something you like, you’re in a financial position to put in an offer. 

What is a home loan pre-approval

Pre-approval is when a lender gives you an estimate of how much you might be able to borrow to buy a home. It’s not an iron-clad guarantee that they’ll lend this amount to you, but rather an indication of your potential loan amount, and that you meet the lender’s criteria.

If you’ve used a borrowing power calculator, bear in mind this calculates a maximum potential loan amount available based on the income and expenses you enter. The amount calculated is only an estimate of the amount to be borrowed and does not take into account specific factors used by individual lenders in determining their own criteria, so it’s likely to differ from the pre-approval amount estimated by a lender.

Why get pre-approval?

Getting pre-approval for a home is a good idea for a variety of reasons:

• It gives you a clearer indication of the price range for your property search, saving you time and energy looking at properties you can’t afford.
• It shows real estate agents and vendors you’re not just another stickybeak at home inspections but are serious about house hunting.
• It puts you in a position to make an offer, should you find a property you like.

Finally, having gone through the process of applying for pre-approval, you’ve already provided the lender with much of the information they’ll need to finalise your home loan, so it can speed up the process of final approval.

When should I apply?

A good time to apply for pre-approval is once you’re getting serious about house hunting.

You’ve done some initial investigations into how much you might be able to afford to repay on a home loan – our home loan repayment calculator can help with this – and you’ve researched the property market in the area you’re looking to buy.

How long a pre-approval offer lasts differs from lender to lender but in most cases it’s valid for 90 days (providing your financial position doesn’t change in that time) so you don’t want to apply too early in your property search or you may have to re-apply.

How do I apply?

After doing some research into the lender you’d like to borrow from, and which of their home loan products meets your objectives (by comparing the loan features, costs, terms and conditions and interest rates) you’re in a position to discuss pre-approval with them. You can also use a mortgage broker to help you with this process.

Typically, you can apply for a home loan pre-approval online, over the phone or by making an in-person appointment with the lender.

Part of the process involves the lender running a credit check on you. Having many credit checks can negatively affect your credit rating, so it’s a good idea to only seek approval from your preferred lender, rather than a range of lenders, and only at a time when you’re serious about buying a property.

What do I need for pre-approval?

The lender will want to know about your financial situation, details of your income, expenses, assets, savings and other loans or debts such as credit cards. So you’ll need to pull together the relevant paperwork.

They may also need to know how much deposit you have and the type of property you’re looking to buy.

Pre-approval process

Once they’ve received the information they need, the lender will run the credit check, find out your credit score, assess whether you’d be able to repay a home loan, and determine whether they’re comfortable lending to you.

If the lender offers you pre-approval it will be for a specified amount.

Placing an offer

Once you have pre-approval it puts you in a stronger position to make an offer to buy a property.

When making an offer on a property listed for sale by private treaty, it can be a good idea to make your offer ‘subject to finance’. This way, you’ll have time to secure final approval of your home loan. If for some reason the lender doesn’t approve it, you should be able to withdraw your offer.

This isn’t the case if you bid for a property for sale by auction. Auction sales are final and you can’t make your bid subject to finance.

In either case, part of the final approval process for a home loan involves your lender obtaining an independent valuation of the property, and they could reduce or decline your loan if they believe you’ve overpaid, so it’s a good idea to use caution when making an offer or bidding on a property.

Process after pre-approval

Once you’ve got pre-approval, found a property you’d like to buy – or even made an offer on one – it’s time to get final, or unconditional approval, of your home loan.

To finalise your loan amount the lender will arrange to have your property valued and confirm that your financial situation hasn’t changed. Before releasing the funds they’ll need documentation from your solicitor or conveyancer about the purchase, and evidence that you’ve arranged building insurance for your new property.

It’s possible the lender that offered you pre-approval may decline to give you a home loan if they’ve changed their approval conditions, there’s been a major change in interest rates, your financial position has changed or they believe you’ve overpaid for the property. In that case, you’ll need to seek a home loan from an alternative lender.

We’re here to help

The road to buying a property can be a long and winding one but at AMP we’re here to help. You can find more information about getting a home loan with AMP Bank online, or alternatively, speak to one of our home loan specialists on 1300 534 325.