A guide to conditional and unconditonal home loan approval

Eager to take a bite out of the real estate market? Before we delve into it, it is important to maximize your financial position and get your ducks in a row to increase your chances of getting approved for a home loan.

You put in tough yards and saved enough for a home deposit, maintained a good credit score and signed a stack of papers, so what then?

In this article, we will reveal:

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Conditional Home Loan Approval

Conditional approval, also known as pre-approval, is the highest level of pre-approval for a home loan where the lender gives an indication of how much they will allow you to borrow based on your current financial situation.

The approval is “conditional” in the sense that the lender does not guarantee that it will provide the home loan – it is subject to any number of conditions. These conditions can include:

• Provide more information and documents including bank statements dating back further than originally requested, payment slips, property appraisal, or completed sales contract from the property purchase.

• Set a certain limit on the home loan you can borrow from.

• Wait for unconditional approval until after you find the property you want to buy.

Although there is no guarantee that your loan will eventually be approved, conditional approval can provide peace of mind when looking for a home. This is because the process will give you a realistic picture of what you can afford, helping to avoid the stress of looking for a home and the disappointment that might lie on the right track.

Unconditional Home Loan Approval

There are no conditions attached when it comes to unconditional approval, which means that the lender has formally agreed to take out a loan to buy a home and there are no other conditions that must be met.

By giving you unconditional approval, the lender will have taken the time to evaluate all the paperwork, finance, and formally apply for the loan and have decided to offer you a home loan based on the property you have identified as the property you intend to purchase.

Lenders are required to formally notify you in writing at the time your home loan approval becomes unconditional.

Don’t get caught!

Homebuyers can fall into the trap of assuming that they have received unconditional consent when, in reality, no such consent has been given. The risk here is that you can make an unconditional offer to buy a property, only to find that you do not have a home loan approval and thus lose it entirely.

This is why it is important to note that a loan cannot be formally approved until the lender has checked all the documentation, proof of your income and expenses, and most importantly, your deposit.

Loss of unconditional consent

Although it is unlikely that a significant change in financial circumstances will occur after unconditional approval, it may result in you being refused a home purchase loan. For example, if you are going to lose your job, the bank may doubt your ability to service the loan.

You may also risk losing mortgage approval if you are required to pay Lenders’ Mortgage Insurance (LMI). If you are subject to an LMI, you must also be approved by the lender’s insurance company. This means that if both the lender and the insurance company read your application and consider you to be too risky, you may lose your unconditional consent.

time frames

Conditional and unconditional home loan approval doesn’t last forever, which means it’s important to strike when the iron is hot.

Depending on the lender, conditional and unconditional approval can usually last anywhere from three to six months. After this period has passed, you will need to re-apply if you cannot find a suitable property.

Lenders typically offer three to six months to allow you to meet their conditional approval requirements before moving on to the unconditional approval stage.

2 years of Savings.com.au

In the period when homes are selling like hot cakes, conditional approval can help your home buying journey. By obtaining conditional approval, you are provided with an indication of how much you can borrow based on your financial circumstances. This can help you over the life of your home loan because it provides a clear indication of the requirements needed to service the loan and meet the necessary payments. It can also help you enter the real estate market before another buyer may not have such approval.

It is important to ensure that once you have unconditional consent, you maintain your strong financial position to prevent the unlikely scenario of losing unconditional consent and possibly your ideal home – something you have worked so hard for!

Image by Maria Ziegler via Unsplash.