Conditional and unconditional approval: what’s the difference?

Your home is likely one of the biggest purchases you’ll ever make, and one of the most exciting too! However, it can be tricky to understand the finance application and approval process. So it’s important understand the difference between conditional and unconditional approval, before signing on the dotted line.

What is conditional approval?

Conditional approval means that, in principle, the lender is happy to loan you money, subject to meeting a few conditions. For example, they may want to see recent payslips, your latest bank statements showing up to date savings or they might require you to first pay off an existing debt to ensure you can afford loan repayments. Conditions vary and depend on your personal situation but they’ll always be clearly outlined for you by your Lending Adviser. They’ll also be documented, in writing, by the lender.

In theory, once you’ve satisfied the lender’s terms, you should be all set. But it’s important to understand that conditional approval isn’t a guarantee… just approval in principle.

What is pre-approval?

Pre-approval is a specific type of conditional approval. It gets a lot of attention because it’s usually seen as the official thumbs-up from your lender that they’re happy to support you in purchasing a property.

Upon pre-approval, your lender will let you know that they’ve agreed to loan you money, up to a stated amount, and they’ll detail any other conditions you need to satisfy – like the requirement to sell an existing property, or supply valuations, inspection reports or a signed purchase contract for your new home.

Pre-approval is a crucial step for buying with confidence – particularly for first home buyers – because it allows you to better understand how much you can borrow and under what conditions. Once you’ve got pre-approval, you can confidently begin house-hunting, formally enquire into properties of interest or even bid at auction, knowing your lender will be happy to back your purchase.

What is unconditional approval?

Unconditional approval means that the bank is happy all conditions have been met and they’re ready to lend to you. In this case, we’ll let you know once your loan has been formally approved. With unconditional approval, you are ready to settle your property.

Other important things to know.

Timeframes:

Both conditional and unconditional approvals are usually valid for a fixed timeframe. Typically, approvals last about three months, sometimes with the opportunity to extend to six. 

In short, this means that you should be confidently ready to buy before you start the lending process.

Accurate information:

Lenders are at liberty to cancel an approval (at any time) should they feel they have been supplied with false or inaccurate information. 

Now is the time to get your life admin in order – make sure to collate all documents like bank statements, proof of employment, proof of residency, pay slips and sometimes an asset list.

Financial situation changes:

Let us know if you change or lose your job after getting approved for a loan. This can affect your overall financial position and we’ll need to notify your lender right away.

It’s also important to note that lenders can cancel the agreement or modify the terms of approval if your financial situation changes. 

Buying a property without pre-approval:

If you want to enquire into a property or bid at auction, pre-approval is not compulsory, but it definitely is helpful. It just means that you can start your property search confidently, with a better understanding of your budget.