Thinking about buying a home? Getting pre-approved for a loan can give you a major confidence boost—but it’s important to understand what it actually means (and what it doesn’t which is equally just as important).
What Is Pre-Approval?
Pre-approval is a lender’s way of saying, “Based on what we see, we’d likely approve you for a loan up to a certain amount.” It’s based on factors like your income, expenses, debts, credit history, and even how stable your job is. But since it happens before you’ve chosen a property, it doesn’t automatically mean you’ll be approved once you’ve found your new home
Why Bother With Pre-Approval?
For starters, it gives you a clear idea of your budget before you start house hunting. Instead of guessing, you’ll know your price range, making it easier to narrow down your options and negotiate with confidence.
How Long Does Pre-Approval Last?
Typically, pre-approvals are valid for up to 90 days, though some lenders let you renew them if you need more time to find the right place. The other thing to be aware of is that only some lenders will Fully Assess a pre-approval application. Many lenders are now auto assessing them which means that it's not till you are seeking formal approval (after you’ve committed to a property purchase) that they’ll do a full and proper review of your application.
What Pre-Approval Doesn’t Guarantee
Here’s where people sometimes get tripped up—pre-approval isn’t a final loan approval. It just gives you a strong indication of what you could borrow. Things can still change when you formally apply for the loan, including:
Lender policies – Banks and lenders update their rules all the time, sometimes even weekly.
Your financial situation – If you take on more debt (like a car loan or credit card) after you were pre-approved, it could affect your borrowing power.
The property itself – Even if you’re pre-approved, the lender will still assess whether the property is a good security for the loan. If they don’t see it as a safe investment, they may not approve the final loan. That’s why a Cooling Off Period (generally 5 days in NSW) is always the most preferred way to enter a property contract (though almost impossible to get if you’re buying at Auction).
End of Day
A Pre-approval isn’t a guarantee, but it’s a valuable tool to help you house-hunt with confidence. If you’re thinking about buying, chatting with a mortgage broker can help you understand your options and get the ball rolling.