Buying a home is a major financial decision, and one of the first questions many buyers ask is: How much can I borrow?
This is where mortgage pre approval can help.
A mortgage pre approval gives you an indication of how much a lender may be prepared to lend based on your financial circumstances before you have chosen a specific property. It can help you establish a realistic property budget, narrow your search and approach negotiations with greater confidence.
However, mortgage pre approval is not the same as final loan approval.
Your financial position may be reassessed, the property will generally need to be acceptable to the lender, and a valuation and other conditions may need to be satisfied before your loan can proceed to settlement.
If you’re considering buying a home on the Gold Coast, understanding how mortgage pre approval works can help you prepare before you start making offers.
What Is Mortgage Pre Approval?
Mortgage pre approval is an assessment by a lender of your financial position and potential borrowing capacity before you have selected a particular property.
It is also commonly referred to as:
- Home loan pre approval
- Conditional approval
- Approval in principle
The lender generally reviews information such as your income, expenses, existing debts, deposit and other financial commitments to determine whether you appear to meet its lending criteria.
If you receive pre approval, the lender may indicate the maximum amount it is prepared to lend, subject to specific conditions.
This can give you a much clearer idea of your potential purchasing budget.
The Australian Government’s MoneySmart explains that pre approval can help buyers establish an affordable price range and demonstrates to sellers that they are serious about purchasing. MoneySmart notes that pre approval generally lasts 3–6 months, depending on the lender.
It is important to remember that a pre approval is not a guarantee that your loan will ultimately settle.
How Does the Mortgage Pre Approval Process Work?
The exact process varies between lenders, but mortgage pre approval generally involves several stages.
1. Review your financial position
Before applying, you or your mortgage broker will gather information about your financial circumstances.
This can include:
- Employment income
- Business income if you’re self-employed
- Existing home loans
- Personal loans
- Credit cards
- HECS-HELP or other liabilities
- Living expenses
- Savings and deposit
- Other assets
- Existing financial commitments
The lender uses this information to assess your borrowing capacity and whether you can reasonably service the proposed loan.
2. Gather supporting documents
The lender will generally need evidence supporting the information in your application.
This is an important distinction between simply using an online borrowing calculator and obtaining a formal pre approval.
A lender may verify the information you provide before making its decision.
3. Submit the application
Once your information and documents are ready, the application can be submitted to the chosen lender.
A mortgage broker can help identify lenders whose lending criteria may be appropriate for your circumstances and help prepare the application.
4. Lender assessment
The lender assesses your application against its lending policies.
This may include reviewing your income, expenses, debts, credit history, deposit and other relevant information.
The result may be a conditional approval or pre approval specifying the amount the lender is prepared to consider, subject to conditions.
5. Start looking for a property
Once you have pre approval, you can search for properties within the appropriate price range.
However, it is important not to assume that the maximum pre approved loan amount is automatically the amount you should spend.
Your purchase budget also needs to account for your deposit, stamp duty where applicable, conveyancing, inspections, moving costs, insurance and other buying expenses.
Pre Approval vs Conditional Approval: What’s the Difference?
You will often see the terms mortgage pre approval and conditional approval used interchangeably.
In many Australian lending contexts, pre approval is essentially conditional approval or approval in principle.
The key word is conditional.
It means the lender has assessed your circumstances based on the information available but there are still conditions to satisfy before final approval.
For example, once you find a property, the lender may need to:
- Assess the property
- Order or review a valuation
- Confirm the contract of sale
- Verify outstanding documentation
- Confirm your financial circumstances have not materially changed
- Satisfy any other conditions attached to the approval
Westpac similarly describes conditional approval, pre approval and approval in principle as an early stage of the home-loan process, with unconditional approval occurring later once further checks have been completed.
The terminology can vary between lenders, so always read the conditions attached to your particular approval.
What Documents Do You Need for Mortgage Pre Approval?
Being organised with your paperwork can make the application process smoother.
The exact documents required depend on your circumstances and lender, but you may be asked for:
Identification
You may need documents such as:
- Driver licence
- Passport
- Medicare card
- Other acceptable identification
Proof of income
For PAYG employees, this can include:
- Recent payslips
- Employment details
- Bank statements showing salary credits
If you’re self-employed
Self-employed borrowers may need additional financial information, such as:
- Personal tax returns
- Business tax returns
- Notices of Assessment
- BAS statements
- Profit and loss statements
- Balance sheets
- Business bank statements
The exact requirements vary between lenders and individual circumstances.
For business owners, this is one reason keeping your bookkeeping and financial records up to date can be important when preparing for a home loan application.
Existing debts
You may need information about:
- Home loans
- Car loans
- Personal loans
- Credit cards
- Buy-now-pay-later accounts
- Other liabilities
Deposit and savings
Lenders may ask for evidence of your available funds, including:
- Savings statements
- Term deposits
- Gifted funds where applicable
- Other assets contributing towards the purchase
Your broker or lender can provide a more precise document checklist based on your circumstances.
How Long Does Mortgage Pre Approval Last?
One of the most common questions buyers ask is:
How long does mortgage pre approval last?
There isn’t one universal expiry period across every Australian lender.
MoneySmart states that pre approval generally lasts 3–6 months, while many individual lenders commonly set a validity period of around 90 days.
For example, NAB states that its conditional approval certificate is valid for 90 days, while Westpac says its pre approval is generally valid for three months and may be extended subject to the borrower’s circumstances.
This means you should always check the expiry date on your own pre approval rather than assuming it will remain valid for a particular period.
What if your pre approval expires?
If you haven’t found a property before your pre approval expires, speak with your lender or mortgage broker.
You may be able to request an extension or need to submit updated information.
The lender may want to verify things such as:
- Current income
- Current expenses
- Existing debts
- Recent bank statements
- Employment
- Credit position
The original approval amount may also change if your financial circumstances or the lender’s lending policies have changed.
Does Mortgage Pre Approval Guarantee Final Approval?
No.
This is one of the most important things to understand before making an offer.
Mortgage pre approval indicates that the lender is prepared to consider lending up to a specified amount, subject to its conditions.
It does not mean the lender has approved a particular property.
For example, you might receive pre approval for a $700,000 loan and then find a property you want to purchase for $800,000.
That does not automatically mean the lender will approve the additional borrowing.
Even if the purchase price falls within your pre approved amount, the lender may still need to assess the property and complete its final checks.
The lender’s valuation can also matter. If the valuation is lower than the purchase price, you may need to contribute more funds yourself or reconsider the transaction.
This is why buyers should understand exactly what their pre approval covers before signing a contract.
What Can Cause Mortgage Pre Approval to Change?
Your pre approval is based on your circumstances at the time the lender assesses your application.
If something significant changes, the lender may need to reassess your application.
Potential examples include:
Changing jobs
Changing employment can affect how your income is assessed, particularly if you move between industries, become self-employed or move to a different employment structure.
Taking out a new loan
A new car loan or personal loan can increase your financial commitments and potentially reduce borrowing capacity.
Increasing credit card limits
Even if you don’t owe anything on a credit card, the credit limit can be relevant to a lender’s assessment.
Missing repayments
New repayment defaults or adverse credit events can affect your application.
Income changes
A significant reduction or change in income may affect serviceability.
Increasing your expenses
Lenders consider your overall financial position, so significant changes in regular financial commitments may affect the assessment.
Changes to lending policies
Lenders can change their lending criteria, rates and policies. A pre approval reflects the lender’s assessment at a particular point in time.
Why Should You Avoid Major Financial Changes After Pre Approval?
Once you have mortgage pre approval, it can be tempting to think the hard work is finished.
It isn’t.
Until your home loan reaches formal approval and settlement, it makes sense to keep your financial position as stable as reasonably possible.
That means thinking carefully before:
- Taking out a new car loan
- Applying for several new credit cards
- Increasing existing credit limits
- Making large discretionary purchases
- Changing employment without considering the impact
- Missing loan or credit repayments
You don’t necessarily need to freeze your finances completely. Life happens and circumstances change.
The important point is to tell your mortgage broker or lender about significant changes rather than assuming your pre approval is unaffected.
When Should You Apply for Mortgage Pre Approval?
Timing matters.
Applying too early may mean your pre approval expires while you’re still deciding whether you’re ready to buy.
Applying too late can leave you trying to organise finance while you’re already negotiating on a property.
A good time to consider pre approval is when:
- You’ve saved your deposit
- Your finances are reasonably stable
- You are actively looking to buy
- You have an idea of the type of property you want
- You understand your approximate budget
- You’re prepared to provide the required documentation
NAB specifically recommends considering pre approval when you’re getting closer to actively looking for a property or making offers, rather than applying too early.
How a Mortgage Broker Can Help With Pre Approval
A mortgage broker can help you understand the pre approval process and prepare your application before you start seriously shopping for a property.
This can include helping you:
- Review your borrowing position
- Understand lender requirements
- Compare available loan options
- Prepare documentation
- Identify potential issues before applying
- Submit an application
- Understand the conditions attached to your pre approval
- Move from pre approval towards formal approval once you’ve found a property
For self-employed borrowers, having organised bookkeeping and financial records can also make the preparation process easier.
Flexible Financial Solutions combines mortgage broking and financial services, giving business owners access to support that can extend beyond simply arranging a loan.
You can learn more about the available Home Loans services before getting started.
Mortgage Pre Approval Checklist
Before applying for mortgage pre approval, consider whether you have:
☐ Saved your deposit
☐ Checked your credit position
☐ Gathered recent payslips or business income documents
☐ Collected bank statements
☐ Listed your existing debts
☐ Reviewed your regular expenses
☐ Organised your identification documents
☐ Prepared business financial records if you’re self-employed
☐ Considered additional purchasing costs
☐ Avoided unnecessary new credit applications
☐ Spoken with a mortgage broker or lender about your options
Having these items ready can help make your application more straightforward.
Final Thoughts: Get Mortgage Pre Approval Before You Start Making Offers
Mortgage pre-approval can give you a clearer understanding of your potential borrowing capacity and help you search for properties within a realistic budget.
But it is important to understand what it doesn’t mean.
Pre approval is not a guarantee of final finance. It is conditional, it has an expiry period and your financial circumstances can still affect the final outcome.
The best approach is to prepare your finances carefully, provide accurate information, understand the conditions attached to your approval and keep your broker informed if your circumstances change.
Ready to Get Your Home Loan Pre Approval Started?
If you’re looking to buy a home, you don’t have to work out the mortgage process alone.
Flexible Financial Solutions can help you understand your borrowing position, prepare for mortgage pre approval and navigate the home-loan process from application through to settlement.
Whether you’re a first-home buyer, upgrading your home, refinancing or self-employed and need help presenting your financial information, getting organised early can make the lending process much easier.
Contact Flexible Financial Solutions today to discuss your home loan options and take the next step towards getting mortgage pre approval.