Pre approval - also called conditional approval or approval in principle - is a written indication from a lender that they are willing to lend you up to a specified amount, based on your financial position at the time of assessment. It is not a guarantee of finance. The lender has assessed you as a borrower but has not yet assessed a specific property.
When you find a property and make an offer, the lender will carry out a valuation and check that the property meets their lending criteria. Only then will unconditional approval be issued. Pre approval simply means you know your borrowing capacity before you start searching, which strengthens your position at auction and when negotiating with sellers.
Most major banks and lenders issue pre approvals for 90 days. Some non-bank lenders offer shorter periods of 60 days, particularly if their credit assessment process is more streamlined. A small number of lenders offer 180-day pre approvals, which can be useful if you are searching in a slow market or waiting for construction to complete.
The expiry date will be stated on your pre approval letter. Your broker will track this and alert you before it lapses so you can decide whether to renew or continue searching under the existing approval.
A pre approval can be withdrawn or become invalid before it expires if your circumstances change materially. Common triggers include: taking on a new debt (car loan, credit card, personal loan), losing your job or changing to casual employment, taking parental leave, or a significant reduction in income.
Lender policy changes can also affect pre approval. If a lender tightens its credit policy between your pre approval and your unconditional application - for example, reducing the maximum loan-to-value ratio for a particular property type - your pre approval may no longer translate to a loan offer at the same terms.
This is why you should avoid taking on any new financial commitments while you have an active pre approval and are searching for a property.
Contact your broker before your pre approval expires. In most cases, the lender will require updated payslips and bank statements to confirm your financial position has not changed. If nothing has shifted materially, they will reissue the pre approval - sometimes with the same expiry cycle, sometimes with a fresh 90-day period.
If your circumstances have changed since the original pre approval - a new job, a pay rise, an additional debt - the broker can factor those changes in and assess whether you need to update the application or switch to a different lender that better fits your current position.
Jason and Steve are Adelaide mortgage brokers who give honest advice at no cost to you. No obligation.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.