July 03, 2018 by Christine Ling
So you had a ‘Conditional Approval’ from your bank and went on house hunting. You find your dream home and made an unconditional offer or won the auction to purchase and later found out that the loan was not approved!
You need to be very careful when you try to obtain your finance. These days the lending criteria are tighter and banks will want written evidence of income, living expenses, deposits, IDs, and other paperwork before a formal approval of a loan.
So what’s a Conditional Approval or Pre-Approval?
Getting a Pre-Approval and understand your borrowing capacity formally is an important starting point in the home purchasing process. A letter of ‘Conditional Approval’ is an approval in principle letter. It is issued when the bank has assessed the signed loan application form and paperwork. Typically the conditional approval has a limited term (90 days in many cases) and a list of conditions to be satisfied prior to moving to ‘Full Approval’ or ‘Unconditional Approval’. There could be a number of conditions, typical ones may be:
- Updated payslips, bank statements or BAS for businesses,
- Fully signed and dated contract of sale,
- Property valuation acceptable by the bank,
- Evidence for funds to complete the purchase, and etc.
Any verbal forms of ‘Approval’ are not approvals at all. Some lenders may tell you a figure of loan amount they could lend based on the figures you tell them in a meeting. You may be told ‘you’d be fine’. Do not rely on those conversations. Only a formal letter of Conditional Approval with clearly specified conditions are indicative offers of loan that you can rely on.
Alternatively, you can seek assistance from a Mortgage Specialist. Typically different banks have different policies and these policies will dictate how much you can borrow, interest rates and fees. The broker will have access to multiple lenders and provide you with some recommendations that best suit your situation and prepare a loan application for you in getting a ‘Conditional Approval’ if you are yet to find a dream home.
So what is an Unconditional Approval?
Following a successful house hunt, your loan application will need to proceed to Unconditional Approval. The bank will have a formal assessment on your application, obtain a valuation of the property and make a decision to formally approve the loan. At this stage, all conditions listed on the ‘Conditional Approval’ letter are satisfied. The letter should state that the loan is ‘Unconditionally Approved’.
Some Important Notes
It is important to note that both Conditional Approvals and Unconditional Approvals are valid for a period of time, typically 90 days.
The amount of loan the banks are willing to approve is typically conservative, build in interest rate buffers, life style allowances and take into account other risks to the bank. Check out our Borrowing Capacity Calculator or have a confidential discussion with us today.
The bank has the right to rescind the loan approvals any time up to the settlement date if there was an error made or they feel they were misled. It is essential to be honest and have open communication with your lender if your financial situation had changed prior to settlement.
At Mortgage Choice in Mosman, we take all necessary steps to ensure that our customers are provided with suitable options and assistance in all stages of their purchasing process, from Pre-Approvals to Unconditional Approvals and Settlement. We ensure that our customers are provided with confidence in their capacity of borrowing and make all efforts to remove all conditions in pre-approvals leading towards settlements.
Don’t rely on the verbal promises, give us a call today and let us help you move forward with competitive loan options and professional support.
M: 0468 389 041
E: christine.ling@mortgagechoice.com.au
