Pre-approval does not approve the property

A home-loan pre-approval assesses your current income, expenses, debts and credit. It can help set a price range, but it does not promise that a lender will fund any specific property.

• 

  BV Finance graphic explaining that home-loan pre-approval does not mean a specific property is approved

• 

  Property valuer measuring an Australian home beside an example showing how a lower lender valuation can increase LVR and cash needed

• 

  BV Finance guide to pre-approval, property assessment, valuation shortfall and finance conditions

Pre-approval checks the applicant

Pre-approval is based on the financial information available at the time and is subject to conditions. When you find a home, the lender may recheck your finances before giving final approval.

The property still needs checking

The lender may arrange a valuation and assess the property's type, location and suitability under its lending policy. A valuation below the purchase price can change the LVR and the amount the lender is prepared to advance.

Worked valuation example

Purchase price: $700,000. Planned loan: $630,000. If the lender values the home at $680,000, the loan is about 92.6% LVR.

If the relevant product is limited to 90% LVR, the loan may be about $612,000. The buyer would need roughly $18,000 more cash, plus buying costs. This is an illustration only; actual outcomes depend on lender policy.

Before making an offer

• Confirm that the pre-approval is current and your circumstances have not materially changed.

• Send the property address and contract to your broker or lender for review.

• Ask a solicitor or conveyancer to review the finance condition and deadlines.

Auctions and contract conditions

Auction purchases are generally not subject to finance and do not have a cooling-off period. Rules and contracts vary between states and transactions, so obtain legal advice before bidding or signing.

Key terms

Pre-approval — an initial borrowing assessment based on current financial information.

Lender valuation — the property value the lender uses when assessing the loan and LVR.

Loan-to-value ratio (LVR) — the loan amount divided by the property value accepted by the lender.

Finance condition — contract wording that sets the agreed finance requirements and deadline.

Bottom line

Pre-approval helps define your range. Final approval still requires the applicant, the property and the contract to pass the relevant checks.

Sources

Moneysmart — Buying a house

ANZ — Home loan pre-approval

NSW Government — Buying property at an auction

General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.