What does “conditionally approved” mean for a home loan?

When looking for a suitable home loan, your mortgage broker may advise you to get conditional pre-approval from a lender first. This may happen, for instance, if you’re not sure about the kind of home you can afford and want a more accurate idea of your budget. Getting conditional approval for a home loan can simplify your decision-making, with lenders giving you an estimate of the size of the home loan you may qualify for. However, this is subject to your financial circumstances remaining unchanged until you finalise the home loan application. Lenders may also set conditions on the kind of home you can purchase, hence conditional approval.

It’s important to remember that such conditional pre-approval for a home loan doesn’t mean your home loan will be approved. Since only a few lenders offer conditional approval, you could have an advantage over other potential home buyers if you manage to get it. This can be particularly helpful if you’re buying through an auction. Also, a conditional pre-approval could mean you have a realistic chance of getting a home loan, possibly quicker than those applying for one after finding a property. You’ll need to make sure you can meet the lender’s conditions for final approval once you get the pre-approval.

How do I get conditional approval for a home loan?

Each lender offers a different process on how to get conditionally approved for a home loan; some may allow it to be done over the phone or even online. This may seem convenient to you, but these options may not offer a full assessment of your application including a credit check. Without this more thorough assessment getting final approval may take longer whilst these assessments get done. Ideally, you should go with a lender who assesses the following even for a conditional approval:

1. Your income and assets (the things you own like a car or another home)
2. Your expenses, including other debt repayments, bills and utilities
3. Your credit report
4. Basic information on the location and type of home you plan to buy

The purpose of getting conditional pre-approval is to make it easier for you to get your home loan approved later. Therefore, you should look to reduce the number of checks the lender needs to conduct when you finalise the home loan. Preferably, the lender should only need to confirm your income and do a valuation of the property you’re purchasing to finalise the loan application after you’ve received conditional approval. 

Your home loan application process doesn’t begin with applying for conditional approval. You’ll likely do some activities before this, and there are others you should do to help you prepare. You may have already seen some properties and thought about a price range. You should also consider estimating your borrowing power and the portion of your income you can afford to use for home loan repayments. Lenders may expect you to have this information ready when you apply for conditional home loan approval. Getting it all together can help the process. You can speak to a mortgage broker if you need help understanding the conditional pre-approval process or connecting with the right lenders.

What do I do once I get conditional approval for a home loan?

Once you have conditional approval for a home loan, you should make sure that the lender has given you written confirmation of it, such as a pre-approval certificate. You should also discuss the lender’s conditions and the steps you need to take to get unconditional approval. The lender needs to specify in writing the duration the conditional pre-approval is valid so that you can finalise your home loan before that time. To finalise your loan you’ll need to have found a property, have an offer accepted or won an auction and be ready to sign the contract. 

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