Pre-Approval vs Approval: What Home Buyers in Australia Need to Know
Buying a home is one of the most exciting and stressful moments in life. For most Australians, finance is the make-or-break factor. Yet one of the most misunderstood parts of the process is figuring out the difference between pre-approval vs approval (also known as full approval, or unconditional approval).
So to help us navigate this, we sat down with Indigo Finance senior lending adviser Ankeet Hindocha.
Ankeet started by saying that pre-approval is one of the most important steps in the home-buying journey, but it’s also an area where the right guidance makes all the difference.
The first thing you should do is understand “what is pre-approval“, which we have covered recently on the Indigo Finance blog. Though once you understand pre-approval, you need to also realise that there is a distinct difference when comparing pre-approval vs approval.
Ankeet explains that he has seen clients caught out after the bank changes its mind between pre-approval and approval, when they haven’t worked closely with an expert lending adviser. So how does this happen? What indeed is the difference between the two? Let’s explore some real world examples and show how we help our clients move confidently from searching to signing.
What Is Pre-Approval?
Pre-approval is a lender’s way of saying, “based on what you’ve told us, we think we’ll lend you this much.” And although it’s not binding, going through this process accurately can let you search with confidence.
When you apply, the lender reviews your income, expenses, debts and credit report. If everything looks reasonable, they issue a letter saying you’re pre-approved for a certain amount. This usually lasts 3 months, or 90 days.
Pre-approval is useful for several reasons:
- Pre-approval sets a clear budget for your property search
- It shows agents and vendors that you’re serious
- Knowing your true financial position highlights issues early (like cash-flow issues or too much unsecured debt)
But it’s important to remember that pre-approval is conditional. It’s based on the information you provided, and if anything changes, the lender can revise their decision.
Why You Need a Good Lending Adviser for Pre-Approval
Ankeet says he has met with clients in the past that worked with other brokers (or gone directly to lenders) and have not been diligent enough in the pre-approval process. Pre-approval is not a guarantee, though getting your paperwork in order makes it far less likely anything will change during the process.
Lenders may ask for updated payslips, bank statements and other documents, however if your paperwork is in order, then this should never become an issue. Just keep in mind, if your income changes, if you switch jobs, or if you take on new debt, your pre-approval could be in jeopardy.
Working with a lending adviser who can work through this with you is absolutely vital to ensure your pre-approval vs approval journey is a smooth one.
What Can Happen In Reality?
One recent case Ankeet shared involved a first-home buyer who came to us in a panic. He’d already exchanged on a property, relying on a pre-approval from another lender. Because he hadn’t gone through the pre-approval phase as diligently as possible, when the bank reassessed his casual payslips, they decided his income wasn’t stable enough and cut his borrowing power by $35,000.
This is something that should definitely have been addressed during the pre-approval phase with a good lending adviser, but was missed by a mortgage broker without the attention to detail.
He had just five days left in his cooling-off period.
After reaching out to us, we immediately reviewed his situation, approached multiple lenders and within days secured a loan that covered nearly all of the shortfall. With help from family, he saved the purchase.
This isn’t an isolated case. When people don’t seek expert lending advisers to help with pre-approval, they can often get caught up with the following circumstances:
- The borrower changes jobs or hours
- Overtime or casual income isn’t accepted
- Lenders apply new policies mid-stream
- Property valuations come in lower than expected (this can be more common with properties purchased at auction)
That’s why we say pre-approval with an expert lending adviser is so much more valuable. Get it right and it gives you confidence when buying. At Indigo Finance, our advisers check lender policies upfront, so you know exactly where you stand before making an offer.
What Is Full Approval?
Full approval is the point where the lender is fully committed to loaning a specific amount of money. They’ve checked your documents, reviewed the property and issued a written confirmation that they will fund your loan.
Unlike pre-approval, unconditional approval means you have certainty. You can exchange contracts, pay deposits and move forward knowing your finance is secure.
A good lending adviser will make sure you are aware of the differences and guide you all the way to this stage.
Key Differences of Pre-Approval vs Approval
Pre-Approval
This is the first part of the journey, where you go to the lender, mortgage broker, or lending adviser and get all your documents, income and expenses assessed. It gives you a very good idea of what you will be able to borrow and therefore spend on a property.
Important things to know about pre-approval:
- Pre-approval is indicative only, based on preliminary details
- That’s why attention to detail with an expert lending adviser is imperative here to give you confidence
- It usually lasts 90 days (or 3 months)
Approval
This is where you get the full and true understanding of what the lender is willing to loan you.
Important things to know about unconditional approval:
- This is a formal, binding commitment from the lender
- You get this after a property valuation is complete
- All your documents are verified
- This step provides total certainty for you to exchange with confidence
In a nutshell, think of it like this:
- Pre-approval helps you search with confidence
- Unconditional approval gives you certainty to buy
Common Borrowing Pitfalls and How to Avoid Them
When asked about the most common mistakes he sees, Ankeet shared the following four pitfalls to avoid:
1- Signing too soon
Some buyers exchange contracts before securing unconditional approval. If the bank later reduces the loan amount (because the original pre-approval process wasn’t completed accurately, or the buyer wasn’t fully informed about the property value), they risk losing their deposit. Working closely with an expert lending adviser mitigates this from the start, as they can walk you through every step of the process.
2- Not updating documents
Lenders will ask for fresh payslips, tax returns and bank statements. If the numbers don’t match the original application, approval may be delayed or denied. Again, a good lending adviser will ensure you are on top of your paperwork to give confidence in your pre-approval.
3- Sticking with one bank
Every lender has different policies. For example, one may reject casual income, while another accepts it. Without a lending adviser, you’re stuck with a single option. Our team ensures you get to compare hundreds of loan products to match the loan to your specific needs.
4- Valuation shortfalls
Banks may value the same property differently. Being informed about the correct value of a property will ensure you are not left in a tricky situation when it comes time to borrow.
He continued to explain that these pitfalls are stressful but avoidable. With the right advice, anyone can move through the process with confidence.
How Indigo Finance Protects Buyers
Our role is to make sure clients never get caught out between pre-approval and unconditional approval. Unlike banks, which can only offer their own products, we compare dozens of lenders to find the right fit.
A good lending adviser like Ankeet can protect buyers by:
- Assessing multiple lenders’ policies before recommending a path.
- Knowing which banks accept different income types.
- Managing the process from first call to settlement.
- Stepping in and acting fast if pre-approval falls apart.
In the case of the first-home buyer short $35,000, Ankeet’s ability to move quickly and leverage our lender network meant he kept the home. This isn’t unusual. With careful planning, most issues can be avoided.
Can you imagine what could have unfolded if this client was dealing with one specific lender and was trying to do it themselves?
FAQs About Pre-Approval vs Approval in Australia
Is pre-approval mandatory
No, it’s not, however we strongly recommend it for all buyers. It gives you a realistic budget and shows agents you’re a serious buyer. Without it, you risk wasting time on homes outside your price range. Why would an agent (or seller) take your offer seriously if they can’t be sure you even have the money to actually buy?
How long does pre-approval last?
Most lenders issue pre-approvals that are valid for 3 months (or 90 days). There are some cases where pre-approval can be longer (or shorter), so it’s crucial you pay attention to the details of your pre-approval and ask questions if you are unsure. If your pre-approval expires, you’ll need to reapply or refresh your documents. This can be straightforward if your financial situation hasn’t changed, though it also adds a layer of work that needs to be done.
Can pre-approval be withdrawn?
Unfortunately, yes. If your income drops, if you switch jobs, or if the bank updates its lending policies, they can cancel or reduce your pre-approval. Now, this is not something that happens often, though it’s important to work with someone who understands the process. It’s one of the main reasons we recommend working with an expert lending adviser, because you never know what life is going to throw at you.
What’s the safest way to buy with confidence?
Make sure you have pre-approval before you start making offers on a property. A good suggestion is to always buy within your limit. Most people think for some reason that they have to spend every dollar they have when they buy a property and that’s simply not the case. Your best bet is to work with a broker or lending adviser for pre-approval, then wait for unconditional approval before exchanging contracts. You can generally make an offer before pre-approval and get full approval during your cooling-off period after the offer is accepted. A lending adviser or broker will guide you through the process. They will help highlight risks and make sure you don’t end up short.
Do all banks treat pre-approval the same way?
This is where a good lending adviser is so important. Some banks do thorough checks upfront, while others only do a quick review and reassess later. This is why comparing lenders matters. At Indigo Finance, we make sure all our clients are kept fully aware of the process as it unfolds. It’s vital information that can easily catch buyers out if they are unaware what is actually going on.
What’s Your First Move Towards Pre-Approval?
If you are looking to buy a property, there are a lot of confusing steps along the journey and a lot of people you will need to get help from.
Our suggestion is to start with a lending adviser who can illuminate each new step of the journey as it unfolds. Otherwise, things can get overwhelming, fast.
Getting your pre-approval is a powerful tool, however it’s only the first step. The Indigo Finance team will help guide you all the way to full approval so you can buy with confidence.
If you’re not sure where to start, reach out. Let’s have a chat and you can get all your questions answered. Go from pre-approval to approval with confidence.
