What is an unconditional home loan approval & can you be denied after approval?

Before you get the keys to your new home, you need to get a home loan which has many stages. You may receive conditional approval or pre-approval in the early stages, which is when a lender lets you know how much they are willing to lend you. With pre-approval or conditional approval you know the amount of money you qualify for to help you with searching for a property within your budget. You’ll still need to go through a couple of more steps before getting unconditional home loan approval.  

What is unconditional approval?

The term ‘unconditional approval’ for home loans means that the lender has looked at your financial history, done a credit check and is offering you a home loan. This is also known as formal home loan approval.

Once you get unconditional approval, your lender will send you a formal letter stating that your loan application has been approved. They’ll go through the process of releasing the funds to purchase your property. 

What is the difference between conditional and unconditional approval?

Conditional approval is given during the early stages of your home loan application when the lender does a basic check of your finances and financial position. However, they still need more information to commit to lending you the funds. On the other hand, unconditional home loan approval means that the bank has done a full review of your documents and your credit and is willing to give you a home loan.

When you get conditional approval, there is still a chance of your home loan getting rejected as the lender still needs to do a valuation of the property, as well as doing an in-depth review of your details and financial history. You can prepare all the relevant documents needed for your home loan application to be approved faster.

What happens after unconditional loan approval?

After the bank confirms your unconditional home loan approval, you’ll get your home loan documents within a week. Read through these carefully and check for any errors or you could seek legal advice to ensure everything is in order. Once you’re happy, sign the documents and return them to your lender.

You should then look at organising home insurance, which will differ depending on whether you’re buying a house, unit or vacant land. You could consider asking your broker for suggestions or comparing policies online.

Once you’ve finalised all the documentation, you’ll want to do a pre-settlement inspection of the property to ensure it’s in the same condition as when you signed the contract of sale. Finally, you’ll go into the settlement period which lasts about 30-90 days and then there is the settlement. Property settlement is the legal process of transferring ownership of the property from the seller to the buyer. A settlement agent or solicitor will facilitate this process, which will conclude after picking up the keys. 

Can a loan be denied after unconditional approval?

While the chances of your home loan being rejected after receiving unconditional approval are low, it’s still possible. You’ll notice on your letter from your lender offering you unconditional approval that it will likely state that the approval is “subject to further bank requirements” under the terms and conditions. This means the lender can still deny your loan if certain conditions aren’t met. For example, if your financial conditions change drastically, the lender may opt to retract their offer and reject your home loan application.

Another possible situation that may result in you losing your home loan approval is if you needed to purchase Lender’s Mortgage Insurance (LMI). If you take out a home loan that requires LMI you’ll not only need to get approval from the lender but also from the insurer who is covering your LMI.

Are there any timeframes for unconditional approval?

Unconditional approval is valid for a fixed timeframe, depending on your lender. Usually, approvals can last for about three to six months from the date of approval. It’s recommended that you ask the lender for the timeframe to ensure you complete the process before running out of time.

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