home loan pre-approval

Home loan pre-approval – what is it?

A home loan pre-approval is where the bank or other lender will approve your home loan before you purchase or make an offer on a property. There are different types of pre-approval:

  • Approval in principle
  • Conditional approval
  • Unconditional approval

However, different lenders sometimes use different names for them.

Home Loan Approval in Principle

This is the lowest level of approval with the lowest level of confidence for the borrower (you). This is where the bank of other lender indicates how much you can borrow subject to the normal lending criteria. This means that you should be able to obtain a loan for this amount but the bank/lender has not yet checked your application to make sure that you meet their lending policy. Some lenders will only want to provide this type of approval as it is much simpler, quicker and does not require them to verify your financial details are correct. Pre-approvals are usually for a set period of time and set person or people and assume that the details are correct and have not changed since your application.

Conditional home loan pre-approval

This is a step up from approval in principle where the lender has check some but not all of your application against their lending criteria/policy. The approval is conditional to you meeting those criteria that have not or cannot yet be verified. If you have not yet signed a contract but the lender has checked everything else about your application you should get a conditional approval, subject to property valuation. This means that provided the property that you are purchasing comes back positive, e.g. no lower than expected in terms of your Loan to Value Ratio, location or type that your loan is pre-approved for. This is the type of pre-approval that you prefer before you seriously look for a property.

Unconditional home loan pre-approval

This is where all aspects of your loan application have been verified and approved. This includes your financial situation and the property that you will purchase. The approval is only valid for a certain period of time, for that specific property and provided circumstances do not change.

What is the advantage of having a pre-approval?

The advantage of a home loan pre-approval is that it gives you confidence that you will be able to get a loan for the specified value. This way you know what price range you can buy a property. It also means that you can act quickly when you find a property you like.