When applying for a home loan, you’ll likely come across the terms conditional approval and unconditional approval.

Let’s look at what these terms mean, how they're different and how to move from one to the other.

Conditional approval

Conditional home loan approval, sometimes called pre-approval , is a bit like qualifying for a race. The first stage is behind you, but you’re not at the finish line.

Despite this, conditional approval can be valuable when you’re in the property market. It can help you understand your potential borrowing power so you can narrow down the properties that are right for you.

When you receive conditional approval, your lender will have reviewed your finances against an initial set of their lending criteria. As part of your application, you’ll need to provide documents such as your ID, payslips, PAYG summaries and information about your assets (such as your savings) and liabities (such as other loans). You can also expect them to ask about your typical monthly expenses.

If you already have a property in mind, lenders are likely to check on the property type, value and area. 

As the name suggests, conditional approval isn’t final. When you’re ready to buy, you’ll need to submit a full application that meets the lender’s full set of approval conditions.  

Typically, conditional approval lasts 3-6 months. If your property search extends beyond this timeframe, you can reapply with the same or a new lender. Remember to update the initial documents you submitted.

Unconditional approval

Unlike conditional approval, unconditional approval confirms your home loan application has been approved. 

When you receive an unconditional approval, your lender would have combed through your paperwork, sized up your property's value, and ensured you tick all the boxes. You can pat yourself on the back, but it might not mean everything's set in stone.

Unconditional approvals outline the key elements of your home loan, such as the loan amount, the annual interest rate and your monthly, fortnightly and weekly repayment amounts. In the conditions, it's worth looking out for the phrase 'subject to further bank requirements'. This means some situations could impact the final decision. 

Your unconditional approval could be retracted for a few reasons, including:

• substantial changes in your financial situation
• your lender discovering errors in your application
• your lender's LMI (Lender's Mortgage Insurance) provider not approving the application. 

In the next section, we’ll show you how to navigate the approval process. 

Moving from conditional approval to unconditional approval

Step 1: Getting conditional approval 

Once you've made your home loan application, it will be assessed by your lender. If you're successful, you will then be given conditional approval. That means your application has been assessed, but more information is needed.

Step 2: Fulfilling your conditional approval

Your next steps can vary among lenders. They often ask for information about your finances (such as income and expenses) and, if needed, information about a property you're interested in (such as value, area and type). 

Step 3: Start looking for properties

Thanks to your conditional approval, you can better understand what you can afford. This could be a great time to start the fun part: house hunting. 

You could use your conditional approval to inform your budget while figuring out what you want. Ask yourself which features are non-negotiable and which are 'nice to have'. Are you looking for a family home? What amenities does your suburb need to have?

Having conditional approval gives you a great advantage regardless of where you look. Property sellers favour pre-approvals, so you can feel more confident giving offers or bidding at auctions. You may even find that sellers prioritise your offer because your finances have already been validated.

Step 4: Getting your unconditional approval

Once a seller has accepted an offer, you both need to sign a contract of sale. A real estate agent will then send this to both of your lawyers or conveyancers for review before going to your lender. 

Your lender would need to do a final review before granting your home loan. If you’re successful, you then receive unconditional approval. You can now rest easy knowing your lender has officially agreed to your home loan application.  

Step: 5: Understanding your unconditional approval

Now, you need to make sure everything looks right. Take some time to thoroughly read and understand the terms and conditions. 

Independent advice from a solicitor is a great way to better understand the conditions, and to clarify anything you’re unsure about.

Step 6: Sign on the dotted line 

Your lender issues a set of loan documents with your unconditional approval. If you're happy with everything, you can sign them. Just remember you need to do this within the timeframe your lender provided. Your new property is just around the corner, so now's the time to celebrate. 

Step 7: The road to your new property

It can take some time to finalise your unconditional approval before settlement. This can be an ideal time to make some final arrangements. 

As you draw closer to settlement, it's worth completing a final inspection to check the property is in the same condition as when it was sold to you. Doing this about a week before settlement allows enough time for the vendor to resolve any issues before you move in. 

In a nutshell, conditional approval can provide guidance and be used to empower your property search. Unconditional approval can then be seen as the green light, confirming that the bank has agreed to lend you money to buy your dream property.

For assistance with your home loan application or answers to your home loan questions, get in touch for a free, no-obligation consultation. 

Talk to a home loan expert

Published 8 October 2023