How long does home loan pre-approval take?

In a competitive housing market, pre-approved finance can take some of the stress out of house hunting, giving homebuyers the ability to offer on a home or bid at an auction with more confidence that they know how much money they can spend. Knowing what you can afford to borrow on your salary while avoiding mortgage stress can also give important peace of mind. Pre-approved finance does come with certain conditions, though, and it’s important to understand how the process works, as well as how long pre-approval takes to get and how long it lasts.

What is pre-approval for a home loan?

Pre-approved finance, also known as conditional approval for a home loan, is an arrangement between a lender and a borrower wherein the lender indicates that they are willing to lend the borrower up to a certain amount of money to fund the purchase of a property. Some prospective buyers choose to apply for pre-approval before commencing the house-hunting process so they are more confident in how much money they can spend. It is important to understand that pre-approval is not an absolute guarantee that a bank or lender will approve a home loan, as it typically comes with certain conditions that need to be satisfied before final approval is given.

How do you apply for pre-approval for a home loan?

Generally speaking, when you apply for pre-approval, as with applying for any home loan product, a lender will want to get a picture of your financial position. Each lender is likely to have slightly different criteria, but in order to apply, you will generally need to provide:

• Identifying documents, such as photo ID, a Medicare card or a copy of an Australian passport
• Bank account statements showing the amount of money you have saved for a deposit – usually this will be at least two months’ worth of statements, or more with some lenders
• Information about any assets you have (such as cars or other properties) and any liabilities (such as HECS-HELP balances or other home loans)
• Credit card statements, if you have any
• Proof of income, typically in the form of payslips
• A breakdown of your monthly living expenses, ranging from grocery bills and school fees to discretionary spending

Lenders will want to view these documents to get a picture of your spending habits and earning capacity, in order to judge how much money they might be willing to pre-approve you for.

Likewise, when you apply for pre-approval, lenders may also ask you about the price bracket in which you are seeking a property, to help them get an idea of your particular needs and requirements.

How long does pre-approval take for a home loan in Australia?

It can take anywhere from several business days to several weeks for your application to be processed once you have applied for pre-approval, while some lenders even say applicants can receive their outcome on the same day as applying. Generally speaking, though, the more complex your finances are, and the busier your chosen bank or lender is, the longer the process will take. If your application is incomplete, or your lender requires additional information about your financial position, then the process could take longer as they wait for you to provide additional paperwork or supporting evidence.

How long does pre-approval last for a home loan?

Generally speaking, once granted, pre-approval is valid for around two to three months, depending on your lender. After this time, it is likely that you will need to present up-to-date documentation about your financial position, so that your bank or lender can assess whether and how much your circumstances have changed. Depending on your circumstances and needs, a lender may be willing to pre-approve you for the same amount, more or less after this period.

What are the advantages of home loan pre-approval?

Obtaining pre-approval for a home loan can have several advantages, including letting sellers know you are serious, potentially allowing for a shorter conditional period, which may bring settlement closer, and giving you the confidence to know your budget before you make an offer on a property you like.

• Letting a seller know you are serious: If you have pre-approved finance, this can show a seller that you are serious about making an offer on a house, and that you already have the conditional approval of a bank or lender, which could mean they are likely to see you as a safer option than someone without conditional approval.
• Shorter conditional period: Having your finance conditionally pre-approved may give you an edge over other buyers who are offering in the same range, as it will take you less time to have your bank or lender give the final sign-off. This may mean you can offer a shorter time frame for finance approval before the contract goes unconditional, but it is a good idea to speak to your lender before shortening the condition in your contractual offer.
• Confidence in your budget: Once you have pre-approved finance, you can search for properties within a certain price range, with a fairly clear idea of the maximum price you can afford, which may make the house-hunting process easier.

What are the disadvantages of home loan pre-approval?

If you are seeking pre-approval, you may want to consider when you apply, as pre-approval can lapse within a short period of time, and multiple applications can have an impact on your credit score.

• Short time period: Given that pre-approvals are generally only valid for two to three months, you may wish to hold off on obtaining one until you are certain that you are ready to buy a property. Otherwise, you may need to apply multiple times, which could be inconvenient and could also impact your credit score.
• Impact on credit score: Whenever you apply for pre-approval, the bank or lender will run a credit check to get an idea of your credit history. These checks will remain on your history, and too many of them can affect your credit score, as lenders may view multiple applications in a short space of time as a sign that you are a risky customer, and may be less willing to lend to you.

Given the potential of multiple applications affecting your credit score, it is therefore important to consider applying to just one bank or lender for pre-approval, instead of making multiple applications.

Does pre-approval guarantee you a home loan?

It is important to understand that pre-approved finance does not guarantee that a lender will lend you money to purchase a home, and is not the same as getting full, unconditional approval for finance. In general terms, pre-approval is subject to certain conditions, one of which will often be that final approval is “subject to a satisfactory valuation”. This means the lender will want to get a sense of the value of the property and how much you’ve offered for it, in order to decide if the loan is too risky. If the lender feels you have offered the seller too much, they may not approve your application. Likewise, if a lender feels that the property itself represents a risk – whether because of its location, condition or some other factor – your application may be rejected.

How can you compare home loans?

If you are considering applying for a home loan and wondering about available rates, you could start by comparing home loans with Canstar. You can compare more than 5,200 home loans on our database, sorted by factors like interest rate and comparison rate, to find a deal that might work for you in your financial circumstances.

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