Home loan pre-approval explained: what it is, how to get it and what can void it

Home loan pre-approval is a lender's indication that it may be willing to lend you a certain amount of money, usually subject to conditions. ANZ notes that it is also called conditional approval or approval in principle. A pre-approval is issued before you have a specific property, so it gives you a working budget for inspections and offers.

What a pre-approval does not do matters just as much. ANZ states that pre-approval is not a guarantee that you will be approved for a home loan, and that one of its conditions is a satisfactory valuation of the property. NAB lists what its conditional pre-approval does not mean: the loan is not fully approved, the property has not been accepted by the lender, the interest rate is not locked in and no final valuation has been done. When a pre-approval is granted, NAB says you receive the amount the lender may lend, any conditions and the expiry date. Those three details are the useful part of the letter: the amount sets your price range, the conditions are your list of what still has to happen, and the expiry date is your deadline.

A home loan moves through stages, and the lender checks different things at each one. Under the responsible lending obligations ASIC describes, lenders must make reasonable inquiries about a borrower's financial situation and take reasonable steps to verify it, and must not provide credit that is unsuitable for the borrower. The table sets out what is typically confirmed at each stage, drawn from what ANZ and NAB publish about their own process. Lenders use the names differently: ANZ treats unconditional approval and full approval as the same thing.

Because the property is assessed only after pre-approval, an application can still be declined at the second stage. ANZ gives three examples: a valuation that does not meet the lender's LVR requirements, a property type the lender does not accept, such as an apartment smaller than its minimum size, and a change in the borrower's circumstances. Banks also test repayments with a buffer. APRA expects banks to assess a new borrower's ability to meet repayments at an interest rate above the loan's product rate, and kept that serviceability buffer in its November 2024 settings. APRA describes the buffer as a cap on how much borrowers can take on, one that does not change mortgage interest rates, so it shapes the amount a lender will offer rather than the rate you pay.

The difference that matters between one home loan pre-approval and another is what has already been checked. NAB lists the verification of income, expenses, assets and debts, and the assessment of credit history, among the conditions that generally attach to a conditional pre-approval, which means a pre-approval can be issued before every figure has been verified. A pre-approval carries only as much weight as the checking behind it, so it is worth asking the lender or broker what has been checked. The questions below show what a buyer, and a seller's agent, can and cannot read into any pre-approval. None of them makes one kind of pre-approval right for everyone; they are a way to read the letter. A broker can explain how a particular lender assesses its pre-approvals.

The steps below are a general outline of getting a home loan pre-approval; ANZ notes that the rules and process depend on the particular lender. The five steps are general information about the process, not a recommendation of a lender or product.

1. 1Check your budget. Use the borrowing power calculator for a rough range before you apply. A calculator gives an estimate only; the lender's assessment sets the figure.
2. 2Gather your documents. ANZ, for example, asks for evidence of identity, income, expenses, employment, savings, deposit and existing debts. The checklist in the next section splits these by income type.
3. 3Choose a lender or a broker. A broker compares lenders on your behalf. FundUp says its panel exceeds 40 lenders, and states its service costs you nothing because the lender pays the broker a commission, which brokers must disclose.
4. 4Apply; a credit check is usual. When the lender requests your credit report, the Office of the Australian Information Commissioner (OAIC) explains that the request is recorded as a credit enquiry on the report.
5. 5Read the letter and its conditions. Note the amount, every open condition and the expiry date, and keep your finances steady until settlement.

FundUp is a Cairns-based mortgage broker that serves clients Australia-wide. Its home loans page sets out how it handles pre-approval for buyers.

The documents a lender asks for depend on how you earn your income. ASIC's Regulatory Guide 209 lists sources lenders can use to verify income. For PAYG employees it names recent payslips, confirmation of employment, recent income tax returns and bank statements. For self-employed people it names recent income tax returns, Business Activity Statements, a statement from the borrower's accountant, financial statements for related business entities, business account statements and bank statements. ANZ asks every pre-approval applicant for evidence of income, expenses, employment, savings, deposit, current debts and identity.

Which business structure suits you, and how income is drawn from a company or trust, are questions for your accountant or a registered tax agent, not a lender. For how lenders treat income without full financials, see low doc vs full doc loans, how lenders assess self-employed income and self-employed home loans.

There is no single processing time for home loan pre-approval, because ANZ notes that the rules and process depend on the particular lender, and every lender has to verify what an applicant tells it. ASIC's RG 209 says a lender needs information to judge whether income is consistent and likely to continue, and for casual or seasonal work, information about the variations in hours and pay that may be expected. Self-employed income goes through the longer document list in the previous section. Supplying a complete document pack with the application gives the lender less to ask for later.

How long a pre-approval lasts is set by each lender. ANZ says its pre-approval generally lasts around three months if your circumstances do not change, and that the timeframe differs from lender to lender. NAB says its conditional approval certificate is valid for 90 days. If a pre-approval expires before a contract is signed, ANZ says a new pre-approval application is needed, and NAB notes that reapplying can affect your credit score. That is why the timing of the application matters as much as the speed of it: a pre-approval that runs out halfway through the search means another application, which usually brings another credit enquiry.

A pre-approval rests on the figures the lender saw, so anything that changes those figures can undo it. NAB says conditional pre-approval generally depends on your financial situation staying the same, and ANZ asks borrowers to tell the lender if their income, expenses or type of employment change. The checklist covers changes that can matter between pre-approval and settlement.

• Changing jobs or employment type. A move from salary to contract work or self-employment changes how income is verified.
• New credit applications. Each one is recorded as a credit enquiry, and NAB says multiple applications within a short period can lower a credit score.
• New debts or higher limits. A car loan, a larger credit card limit or a buy now pay later account changes the debts the lender counts; the OAIC notes buy now pay later is a type of credit that may appear on your credit report.
• Missed repayments. Your credit report can include repayment history showing whether payments were made on time or missed.
• Spending the deposit. The savings and deposit the lender saw are part of its assessment.
• A property the lender will not accept, or a low valuation. ANZ gives both as reasons an application can be declined after pre-approval.

Checking your own credit report before applying is free once every 3 months, according to the OAIC. Credit reporting bodies may hold different information, so the OAIC notes you may need to request a report from each one.

In Queensland, a pre-approval is most useful when its expiry date sits well beyond the contract's finance date. The Queensland Government notes that a contract might be subject to conditions such as whether you get finance, and that you must check those conditions are in the contract when you sign, otherwise they will not be legally binding. The standard contract for buying a home comes with a cooling-off period of 5 business days. It starts the day you get a copy of the contract signed by both parties and ends at 5pm on the fifth business day, and a buyer who terminates in that window pays a penalty of 0.25% of the purchase price.

1. 1Apply for pre-approval when you are close to making offers, so the expiry date covers the search, the finance date and the full application.
2. 2Before signing, compare the pre-approval's expiry date with the contract's finance date, and take the contract to a solicitor, as the Queensland Government advises.
3. 3Once the contract is signed, send it to the lender or broker straight away so the valuation and full application can run inside the finance period.
4. 4If you plan to buy at auction, finish the finance work, including a valuation, before auction day.

Queensland auctions work differently. Auctions have no cooling-off period, and the terms of sale usually require bidding on an unconditional basis, without a subject to finance condition. The cooling-off period also does not apply to a private treaty contract signed within 2 business days of an unsuccessful auction by a buyer who was a registered bidder; an agreement more than 2 days after the auction does come with one. The Queensland Government suggests arranging finance and getting a property valuation before an auction, and warns that a successful bidder who cannot settle on time may be forced to pay the amount of the winning bid and the cost of re-auctioning. A pre-approval alone does not include a valuation of the auction property.