Home loan pre-approval – everything you need to know
- Home loan pre-approval is the initial thumbs up from a lender that you can borrow up to a certain amount
- Usually valid for 90 days, depending on the lender and subject to conditions before full approval is granted
In our home loan pre-approval guide:
1
3
5
2
4
1
2
3
4
5
What is home loan pre-approval?
Home loan pre-approval means you pre-qualify to borrow a certain amount of money from a lender based on information you provide about yourself and your financial situation. It’s sometimes called ‘conditional’ approval because it’s subject to conditions before the lender will give full loan approval.
Pre-approval is an initial thumbs up that you have provided sufficient documentation to meet the lender’s approval criteria. It gives you an idea of how much you can borrow to buy a property and what you can offer to potential sellers. For example, if you’re pre-approved to borrow a maximum of $600,000, your application may ultimately be declined if the property you find would require a larger loan.
When you finally make an offer on a home that ticks all the boxes and it ’s accepted, the lender will decide whether to give you full approval (also known as unconditional approval).
When you get home loan pre-approval, the lender will inform you of:
- The maximum loan amount you qualify for, your interest rate and loan term
- The timeframe the pre-approval is valid for — usually 90 days (three months)
- The conditions that must be met for your home loan to be approved in full — usually a complete credit check, property valuation, and having a contract of sale
How does home loan pre-approval work?
Pre-approval is an early step in the home loan application process before final approval. Your lender will consider:
- Your income, expenses and outstanding debts
- Your deposit amount or equity
- Your likely loan-to-value ratio (LVR) based on the price range of properties you’re interested in
- Whether you have a guarantor
Keep in mind that pre-approval is not a guarantee of credit, and you, as the borrower, are also under no obligation to take the loan. However, pre-approval does show you're a serious buyer and that you're confident you can afford a property.
When should you apply for pre-approval?
“The best time to get pre-approval is when you’re ready to seriously pursue properties and put in offers. If a real estate agent asks if you have pre-approval and you tell them no, you may as well as tell them you’re not a serious buyer. This can kill your negotiations before they even start.”
Mansour Soltani, Money.com.au's home loan expert
Types of pre-approvals
1
System-generated pre-approval
This is an automated assessment of your borrowing capacity and creditworthiness. It’s a quick online process that can provide pre-approval within just a few minutes. This type of pre-approval relies solely on the information you provide, without any supporting documents to back it up. This leaves room for errors and is therefore less reliable than a full assessment.
2
Full assessment pre-approval
This is when a lending specialist assesses your individual circumstances and finances. They will verify your financial documents and conduct a full credit check via a credit bureau (e.g. Equifax, illion and Experian). A full assessment may take a few days to complete but will give a better indication of your likelihood of receiving unconditional approval from the lender.
Home loan pre-approval vs no pre-approval case studies
Case study 1 — buyer with pre-approval
Jason Elwood is a home buyer who got pre-approval before inspecting properties. He was in the market for eight months and inspected 12 properties before finding the right one. He was rejected on six offers initially until he sealed the deal with a pre-approval on a $745,000 home.
- Pre-approved amount: $950,000
- House price: $745,000
- Deposit: $180,000
“My wife and I needed a bigger home as our family was expanding. We were inspecting properties in Brisbane when the market was hot and we knew we needed to have our ducks in a row if we had any chance of securing a property before our second child was born. Our lender asked to see some payslips and a letter of employment before issuing the pre-approval. The fact we had a child on the way did reduce our borrowing capacity by $200,000. Anyway, we got approved by our current lender and when we did finally find a home we liked, our offer was accepted immediately because we had pre-approval.”
— Jason Elwood, home buyer from Brisbane.
Case study 2 — first-home buyer with no pre-approval
Dave Langford is a first-home buyer who opted to forgo pre-approval. He was looking for a property for a few weeks and inspected six properties before finding the right one. He was rejected on three offers until he sealed the deal on a $540,000 home with no pre-approval.
- Pre-approval: No
- House price: $540,000
- Deposit: $50,000
“I had market knowledge and a solid idea of my borrowing capacity and debt-to-income ratio. I was confident my financial situation would allow me to get a mortgage and that my application would be straightforward enough not to delay the full approval process. I chose to skip pre-approval and save time on what is essentially a formality in the home-buying process."
— Dave Langford, first-home buyer from Melbourne.
How to apply for home loan pre-approval
The home loan pre-approval process has fewer steps than a full application. Here’s how it works:
1. Fill out the lender’s home loan application form
You can do this online on the lender’s website or you can book an appointment with a home lending specialist if you prefer to speak to a person or have questions about the process. You’ll be asked some basic questions to check your eligibility for a home loan before proceeding. The lender may direct you to a home loan specialist if you’re:
- Self-employed
- Retired
- Plan to apply with a guarantor
- Want a split loan
- Not an existing customer
2. Submit your supporting documentation
If you’re getting a full-assessment pre-approval, your lender will give you a list of paperwork you need to submit. This will usually include some recent payslips, bank statements, details of financial obligations, like credit cards or other loans. Have your documents ready to speed up the process.
3. The lender will assess your borrowing capacity
The lender will estimate how much you could repay on a home loan based on information you provide about your income, living expenses and outstanding debts. Some lenders will conduct a ‘soft’ credit check (which doesn't impact your credit score) before giving you conditional approval. Others may simply use a serviceability calculator.
A ‘hard’ credit check (recorded on your credit report) is usually only conducted when you apply for unconditional approval. That’s when the lender will check for any outstanding debts, missed payments or defaults on your credit file. Keep your credit rating in good standing by staying on top of your debt payments.
4. If you’re pre-approved, you'll receive a pre-approval letter
Your pre-approval letter will specify the maximum loan amount you qualify for and your interest rate. With pre-approval in your pocket, you can actively shop around for your dream home with a budget in mind.
5. When your offer for a property is accepted, the lender will decide whether to give unconditional loan approval
Once you've found a property you want to buy and your offer has been accepted, your application can proceed to the next stage — unconditional approval (or full approval). The lender generally will ask for:
- Your contract of sale or acceptance of offer
- Confirmation your financial situation hasn’t changed
- A property valuation report
- Fulfilment of any additional conditional requirements, such as obtaining building insurance.
After that, your lender will issue a formal loan offer detailing the terms and conditions of the loan, including your rate.
Documents you need for home loan pre-approval
Your lender may ask you to submit some supporting paperwork to verify your personal and financial information. This is an important step in the pre–approval process to get an accurate assessment of your borrowing capacity. Here’s a list of documents you may be asked to provide:
Identification documents
You’ll need to verify your identity with the lender before you can apply for any home loan product. If you’re already a customer, the lender may skip this step.
When you apply for pre-approval, you will be required to satisfy the 100 points of ID system. You’ll be asked to provide at least one primary document (e.g. passport, driver’s licence, citizenship certificate) and secondary documents like a Medicare card, bank statements and utility bills.
Proof of income
Your lender will need proof of income to assess your borrowing power, including:
- Two payslips for the year to date (usually in a PDF format)
- A contract of employment which states your annual salary
If you’re self-employed:
- A tax return for the year to date (some lenders may require two latest returns)
- Up to two years of financial statements, including profit and loss (P&L) statements
If you rely on other income types for your application (like rental income from another property you own or dividend income if you own shares), you’ll need to provide evidence of this too.
Bank statements
Your lender may ask for three months of bank statements to validate your income, check your living expenses and that your deposit has been accrued over time if you’re a first-home buyer. Lenders want to see a genuine history of savings and responsible spending. If you want to know how your bank statements might look to a lender, try our Free Bank Statement Health Check.
You need to be able to explain any inconsistencies in your earnings and expenditures to your lender. Whether it’s a recent holiday you’ve taken (like a honeymoon in the case of many first-home buyers) or a car purchase, it’s important to indicate this to a lender so it can accurately assess your regular spending habits.
Proof of your assets and liabilities
Your lender will also ask for a summary of what you owe (your debts) and what you own (your assets) and take this into account when considering your application:
Debts could include:
- Credit card limits
- Personal or car loans
- An existing home loan
- Buy now, pay later (BNPL) accounts
- Student debt
Assets could include:
- Money in a savings account or term deposit Investments (e.g. shares or bonds)
- A car or other vehicles
- Other properties
Pros & cons of getting home loan pre-approval
Pros | It gives you an idea of how much you can borrow and what your property budget is |
|---|---|
| Cons | It generally only lasts for 90 days, meaning you may need to re-apply if you don’t find a property before the pre-approval expires |
Pros | Having pre-approval can give you an edge over other buyers making an offer on a property, as you may be seen as a more committed buyer |
| Cons | If you apply for pre-approval, it is generally shown on your credit report and may affect your credit score, particularly if you apply for pre-approval more than once |
Pros | Pre-approval can help speed up the application process for your final home loan approval |
| Cons | Ultimately, pre-approval does not guarantee that the lender will give you a loan and your final application could still be declined |
| Pros | Cons |
|---|---|
It gives you an idea of how much you can borrow and what your property budget is | It generally only lasts for 90 days, meaning you may need to re-apply if you don’t find a property before the pre-approval expires |
Having pre-approval can give you an edge over other buyers making an offer on a property, as you may be seen as a more committed buyer | If you apply for pre-approval, it is generally shown on your credit report and may affect your credit score, particularly if you apply for pre-approval more than once |
Pre-approval can help speed up the application process for your final home loan approval | Ultimately, pre-approval does not guarantee that the lender will give you a loan and your final application could still be declined |
FAQs about home loan pre-approval
Who’s eligible for pre-approval?
The minimum eligibility requirements for pre-approval with most lenders include:
- Australian citizenship or permanent residency (or married or in a de facto relationship with an Australian citizen or permanent resident)
- You must be over 18 years of age
- Meet the minimum income requirements
Conditional vs unconditional approval: What’s the difference?
Conditional approval means your home loan application has been partially assessed and approved in principle, subject to final conditions set out by the lender. It’s simply known as a pre-approval. Unconditional approval is when the lender confirms your home loan application has been fully approved and no more requirements are to be met.
Does pre-approval guarantee a loan?
No, pre-approval is not a guarantee of credit or a formal approval for a home loan. The lender will make that clear in your pre-approval letter. Home loan pre-approval only means a lender has agreed in principle to lend you a specific amount of money based on the information provided and subject to conditions.
Your home loan application can still be denied even if you’re pre-approved. Reasons your application might ultimately be declined could include:
- Your income or employment situation has changed since you were pre-approved
- You’ve taken on new debts
- The property you’re buying does not meet the lender’s criteria. For example, the valuation of the property is not sufficient relative to the amount being borrowed (i.e. your LVR is too high).
How long does home loan pre-approval take?
Getting pre-approval generally only takes a few days depending on the lender and the complexity of your home loan application. Having all your information and financial documents ready can help speed up the process. You can always ask the lender how long the process generally takes to ensure you aren’t left waiting anxiously for your pre-approval letter.
How long does home loan pre-approval last?
Pre-approval is valid for 90 days with most lenders, according to Money.com.au’s analysis. Some lenders like Tic:Toc only offer pre-approval valid for 60 days. Lenders don’t typically offer pre-approvals longer than 90 days because your financial situation can change, and suburb valuations are only valid for that length of time. Beyond Bank is one of the few lenders in Australia advertising four-month pre-approval (120 days) on some of its home loans.
If you haven’t found a property before your pre-approval expires, you will need to re-apply for it or your lender may renew it if you ask (and your financial situation hasn't changed).
Do I need pre-approval to get a home loan?
You don’t need to get pre-approval to get a home loan, but it does give you a solid estimate of what you can borrow and therefore what your budget is. Real estate agents and sellers often prefer to negotiate with buyers who have pre-approval, both at auctions and private treaty sales.
Does a pre-approval affect my credit score?
Pre-approval doesn’t impact your credit score if the lender conducts a ‘soft’ credit check, usually during a system-generated assessment. Pre-approval only impacts your credit score if the lender conducts a ‘hard’ credit check, usually during a full assessment pre-approval.
Can I get home loan pre-approval with bad credit?
You can still get home loan pre-approval if you have bad credit (i.e. a low credit score), although you may need to work with a mortgage broker or specialist bad credit lender that provides low doc home loans to get your application to that stage. You may be asked to provide a guarantor.
You may also need to include further information or evidence of your improved financials, such as documents that show you have:
- Paid off defaults on your credit file
- A plan to pay off remaining debts and are consistently making repayments on time
Shopping around for the right loan can save you thousands of dollars in interest and fees.
Home Loans guides and resources
What's the next step on your property journey? Our home loan guides will help you navigate the road ahead, whether you're buying, building or looking to save on an existing loan.
AS FEATURED IN
Written by
Senior Finance Writer
Megan Birot
Reviewed by
Home Loans Expert
Mansour Soltani
