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The Difference Between Conditional Approval And Unconditional Approval

Conditional Approval And Unconditional Loan Approval

There’s no better feeling than receiving approval on your home loan. Whether you’re a first-time buyer or refinancing, seeing that stamp of approval means you’re almost ready to get your new life underway in that dream property.

With home loan commitments in Australia increasing at a rapid rate, you don’t want to be part of the unlucky few who suffer the heartache of not getting approved.

As a prospective home buyer, approval does not simply mean approval. There’s a lot of jargon to navigate, and it’s crucial to know what separates conditional approvals from unconditional approvals.

This article is designed to guide you through both and answer some of your most burning questions like can you be denied after unconditional approval? Or, what happens after unconditional approval?

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Finalising loan approval documents

What Is Conditional Home Loan Approval?

Conditional approval, also known as pre-approval, simply means that your lender has agreed in principle to lend you the money. However, this is not a final approval of your home loan.

At this stage, your home loan has been assessed, which includes income, debt history, and credit score, but you’re not formally approved yet. This is because extra information may be required such as property valuation and more recent payslips.

If you receive conditional approval on your home loan, you’re one step closer to securing your property. There’s no obligation at this point to accept that home loan or for the lender to lend you that amount.

In essence, it’s an indication of what the lender thinks you can borrow, taking into account your financial situation and your desired property price.

Unless the lender provides you with an approval letter that details the conditions that need to be met, then don’t assume your home loan is closer to being accepted.

A phone call from the lender asserting that your home loan has been approved is not formal approval!

What Are The Advantages Of Pre-Approval?

Receiving conditional approval puts you in a better place when navigating the housing market. It shows real estate agents that you’re serious and ready to negotiate based on the conditional approval offer. This gives you a leg up over the competition without pre-approval.

Pre-approval is by no means compulsory to enquire into a property or make a bid at auction. However, it is helpful for both you and your estate agent. You can both be on the same page about property valuation and correlating budget.

If you want to enquire into a property or bid at an 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.

Let’s say you’re still in the early stages of your buying journey, visiting open houses and poking your head in the market. With conditional approval, you have a clear idea of what your budget is and what you can afford based on what your lender is likely to loan you.

The advantage of having this security is that you won’t waste any time visiting open houses that are outside your budget. Instead, you can make offers with the confidence that you can afford them.

Also, if anything changes in your financial situation when looking for your next home, you can renew the conditional approval with your lender.

Being conditionally approved, however, doesn’t last forever, and finding the right mortgage broker will help home buyers understand timeframes and what must be in place when applying.

Generally, a conditional approval usually lasts 3 months, but this can change depending on the lender.

When And How Do I Apply For Pre-Approval?

The majority of homebuyers will apply for pre-approval after they have conducted research such as:

  1. Checking your budget and borrowing power which you can do with Lendstreet’s calculators.
  2. Scanning the property market and deciding what suburbs interest you.
  3. Taking some time to plan for your deposit.
  4. Understanding the different types of loans available.

Once you’ve done this, you can make an appointment with a trusted mortgage broker like those available at Lendstreet. Their professional advice can get you through pre-approval as soon as possible.

When meeting with a broker make sure to have in mind:

  1. The price range of your desired property.
  2. The deposit amount you have saved.
  3. Income.
  4. Living expenses.
Customer applying for a home loan

What Is Unconditional Home Loan Approval?

Sometimes referred to as formal home loan approval or full approval, unconditional approval,  means that the lender has everything they need to make a final decision. You’re at the point where you can prepare the champagne as the lender is officially willing to lend you the money.

It means that your lender will offer you a home loan based on your budget and the valuation of your desired property, and there are no more requirements left to satisfy. Again, make sure you receive a formal letter stating all the details before planning any celebrations.

As with conditional approval, unconditional approval also means that you don’t have to accept the loan if you’re unhappy with it. However, if you’re ready to go ahead and accept, the last step will involve reading and signing loan paperwork.

As trusted and experienced brokers, Lendstreet can explain all the lending criteria in your loan documents.

What Happens After Unconditional Home Loan Approval?

After you’ve been unconditionally approved by your lender, you can begin to put everything in place and finalise the whole process. This will include:

  1. Signing Your Loan Documents. A week after your formal approval, you’ll receive your loan documents. Make sure you check thoroughly for any errors and let a broker and legal advice team read through before signing.
  2. Prepare Home Insurance. This will vary depending on your property, but Lendstreet can find suggestions that will suit your situation.
  3. Look At Grants. There are various state-funded grants available that can provide you with more financial support. Try applying for the First Home Owner Grant (FHOG) or the First Home Loan Deposit Scheme (FHLDS).
  4. Pre-Settlement Inspection. Make one last appointment with your real estate agent to make sure the property is in the right condition as when you signed the contract of sale.
  5. Settlement Period. Finally, when everything is signed and ready you’ll enter a settlement period that can last between 30 to 90 days. Settlement refers to the process of transferring ownership from the seller to you (the buyer). This process is handled by your legal advice team.
  6. Pick Up Your Keys. You’re all ready to move in once your legal advice team has transferred ownership!

For more information, you can find a full breakdown of the home buying process on our website, whether you’re a first-time buyer or planning to refinance.

Further Negotiations After A Formal Approval

Remember, you don’t need to settle for the terms of your unconditional approval straight away. Formal approvals can be adjusted and tweaked if you have any problems. 

However, any further negotiations with lenders after sending a formal approval letter may result in a full reassessment of the home loan application process with a new unconditional letter being sent to you.

This will add more time to the settlement process, but you should be happy with your home loan before signing. It’s one of the biggest decisions of your life so get it right the first time.

Can A Home Loan Be Denied After Unconditional Approval?

Generally, after home loans are given the all-clear with unconditional approval, no more problems should arise. However, there is still a possibility that formal approval could be denied.

You will usually know whether this is possible as it will be written into the terms and conditions of your formal approval.

The reason lenders will deny a borrower a home loan after receiving unconditional approval will be due to a sudden change in the borrower’s financial situation.

For instance, if you unexpectedly lose your job after receiving formal approval, your lender will question your ability to pay back the loan.

More rare examples of being denied formal approval include a high-risk case of fraud or not being approved by the lender’s insurer.

Customer reviewing home loan documents

Key Differences Between Conditional and Unconditional Approval

Having explored both conditional and unconditional approvals, let’s recap the key differences.

 Conditional ApprovalUnconditional Approval
Lender's DecisionPre-approved with more requirements needed from the borrower.The lender has all the requirements needed to approve your home loan.
Property SearchAt this point, you will still have time to survey the market. A conditional offer provides you with a more concrete loan limit.You have chosen a property and the banks weighed up the value to make sure you can afford it.
Support NeededA mortgage broker can help you apply for pre-approval, walk you through the process, and provide advice on property valuations.Before signing the loan documents of unconditional approvals you will need both a legal team and mortgage broker to read through them.
TimeframesIt can take up to 2 weeks for your conditional offer to be received after you submit an application. The conditional approval will then last 3 months until it expires.Generally, it will take 4 to 6 weeks from submitting the application to reach the final stages of settlement.
Can It Be Denied?Yes. As the term conditional suggests, this approval only means that you satisfy the initial requirements of the loan. If your financial circumstances change, the lender may decide to deny you the loan.It’s very rare but still possible. Cases of drastic change in the borrower’s finances or suggested fraud may lead to an unconditional offer being denied.
Unconditional Loan Approval received by the customer

Want To Get Approval Today?

Are you ready to start your home buying journey today? Do you feel more confident in understanding the difference between conditional and unconditional approval?

Then, why not get in touch with Lendstreet. We’re here to help you with any more questions you might have and provide expert advice.

Choose a day and time by booking an appointment with us and we can get you all prepared for pre-approval and get you closer to being unconditionally approved.

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FAQ

Does Conditional Approval Mean Approved?

Conditional approval means that your home loan has been assessed but only approved in principle. Therefore, the lender requires more information in order to grant what is called formal approval or unconditional approval. This may include the most recent payslips and property valuation.

Is Conditional Approval A Good Thing?

Yes. Conditional approval can be a real advantage for borrowers, as it confirms that you’re heading in the right direction to secure your home loan. With conditional approval, you have a clear idea of your budget and what you can afford based on what your lender is likely to loan you. This will also mean that real estate agents will take you more seriously when viewing homes.

Can You Be Denied After Conditional Approval?

Yes. As the term conditional suggests, this approval only means that you satisfy the initial requirements of the loan, and there’s no guarantee that the lender will agree to lend you the money. For example, if a borrower’s financial position changes then a lender will be less inclined to formally approve the home loan.

What Happens After Conditional Approval?

After receiving conditional approval, you will have around 3 months until it expires. During this period, you will have to supply all the requirements that have been asked for by your lender. This may include payslips from the past 3 months and property valuation.

How Long Does Conditional Approval Last?

Conditional approvals certainly don’t last forever. Generally, they have a 3-month timeframe for you to provide all the requirements the lender has asked for. This 3 month period can change depending on your lender.

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