Explainer: Home Loan Pre-Approval


Purchasing a home is an exciting period, especially for first home buyers. Pre-approval for the property may seem like a daunting experience, and there may be some questions that spring to mind. When do you need to get pre-approval? How long does it last? And what is involved?

A pre-approval is the lender’s assessment of your ability to service (repay) the home loan which determines the likelihood of the loan being approved for a suitable loan. This assessment is based on calculating your living expenses, liabilities, credit history, employment and how often you’ve moved addresses or jobs previously.

Uncertainties can arise since pre-approval is performed before the property is chosen and does not take into consideration the specifics of a particular property and the valuation. However, pre-approval gives buyers an understanding of how much they can borrow before attending auctions and open homes. A pre-approval allows borrowers to feel reassured knowing that the lender has assessed their application to ensure it aligns with their policies.

Usually, pre-approval is in place for up to 90 days, although this depends on the lender. If it takes longer than 90 days for the borrower to find a property, the lender can renew to pre-approval to allow more time. While pre-approval allows the borrower to take comfort in knowing the bank has looked at their application, it is not a guaranteed loan. Instead, it is the lender distinguishing how much they expect to lend to you. This may change on your final application.

There are a few factors that could impact your final application which includes if your circumstances have changed after you have received pre-approval. Lenders’ will check if there are any new debts, such as another credit card, car lease or any other liability that could affect income and serviceability.

Additionally, the pre-approval is conditional based on the property valuation. If the bank deems the property is not a marketable asset, they may not approve the loan. The bank will use the valuation to check if the property is readily saleable and to ensure that the security is acceptable.

If you are looking to purchase a property or would like more information about the pre-approval process, please feel free to give Scott a call on 0412 092 107.