What home loan preapproval means
Preapproval can give you an indication of the amount a lender may be prepared to consider based on the information available at the time.
Depending on the lender and application process, the assessment may consider:
Income and employment
Living expenses
Existing debts and credit limits
Credit history
Savings and available deposit
Dependants and other commitments
The requested loan amount and structure
The terms preapproval, conditional approval and approval in principle are not always used consistently. The name alone does not tell you how thoroughly the application has been assessed.
The amount a lender may be willing to lend is different from the amount that suits your circumstances. Your own budget should also allow for purchase costs, ongoing ownership expenses, changes in interest rates and the way you want to live.
What preapproval does not confirm
Preapproval does not usually confirm that finance will be available for every property or under every set of circumstances.
Before issuing final approval, a lender may still need to:
Verify or update financial information
Complete further credit and identity checks
Review the signed contract
Obtain a valuation
Assess the property's location, condition and marketability
Confirm the deposit and source of funds
Check that all lending conditions have been satisfied
Reassess the application if circumstances have changed
Before signing: Preapproval remains subject to final assessment. Do not assume it removes the need for an appropriate finance condition or legal advice before signing a contract.
Understand what has been assessed
The depth of a preapproval assessment varies. Some applications involve detailed verification, while others rely more heavily on information supplied by the applicant and remain subject to further checks.
Ask the lender or mortgage broker:
Has my income been verified?
Have my expenses and existing liabilities been assessed?
Has a credit check been completed?
Has the source of my deposit been considered?
Are any documents or checks still outstanding?
What conditions apply to the preapproval?
When does it expire?
What changes must I report?
Are there property types or locations the lender may not accept?
What will be required before final approval?
Keep the lender informed
A lender may need to reassess the application if your circumstances change before final approval.
Changes worth discussing with the lender or mortgage broker may include:
Employment or income changes
New loans, credit cards or increased credit limits
Changes to regular expenses
A different deposit amount
A change in the proposed purchase price
A change in the type or intended use of the property
New financial commitments
The preapproval approaching its expiry date
Finance clauses still matter
A preapproval does not necessarily remove the need for a finance condition in the contract.
The wording, amount, lender and deadline within a finance clause can affect the buyer's obligations and options. Before signing, ask a Queensland solicitor or law practice to review the proposed contract and explain how the condition operates.
Confirm with the lender or mortgage broker whether the available timeframe is realistic for valuation, assessment and final approval.
Buying at auctionPreapproval is only one part of preparing
Residential property bought at auction in Queensland does not have a cooling-off period, and the contract is generally not subject to finance unless the seller has agreed otherwise before the auction.
Preapproval does not guarantee that the lender will approve the property or complete its assessment after the auction.
Before bidding, consider confirming:
Your bidding limit
The available deposit and payment arrangements
The lender's remaining requirements
Whether the property is likely to be acceptable security
Whether a valuation or further assessment is needed
That the contract has been reviewed by a Queensland solicitor or law practice
That relevant searches, inspections and due diligence have been completed
Lender or mortgage broker
A buyer may apply directly to a lender or use a mortgage broker.
A lender can explain its own products, assessment process and conditions. A mortgage broker may compare options from the lenders on their approved panel and assist with the application process.
A broker may not have access to every lender or loan product. Ask which lenders are included on the broker's panel, why a particular option is being recommended and how the broker is paid.
Mortgage brokers providing credit assistance to consumers are subject to a best interests duty. This does not remove the need to understand the proposed loan, its costs and its conditions.
Credit enquiriesAsk before submitting multiple applications
A formal credit application or request for credit may result in an enquiry being recorded on your credit report.
Before submitting an application, ask whether a credit check will be completed and whether the lender or broker is making an initial enquiry or lodging a full application.
Avoid unnecessary applications made only to compare possible borrowing amounts. A lender or mortgage broker can explain what information is required and when a credit enquiry may be recorded.
Home loan preapproval can help establish a working price range before you search.
Its usefulness depends on what has been assessed, the conditions that remain and whether the proposed property meets the lender's requirements. Understand those limits before making an offer or bidding at auction.