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Conditional vs. unconditional home loan approval

Home buyers will know that sense of relief you feel when the home loan you’ve applied for is approved. It means that you are officially one step closer to owning your next property. And, if you’re simply refinancing, it means that you’re getting closer to a more suitable home loan.

So, how do you know whether your application has been formally approved? In this article we’ll explain the difference between conditional and unconditional home loan approval, and tell you what you need to know about pre-approval and being denied a home loan.

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What is conditional home loan approval?

Conditional approval is a type of home loan pre-approval where a lender provides an indication of how much they will let you borrow. Otherwise known as approval in principle, it means that the lender is not guaranteeing that they will provide the home loan. It is subject to any number of conditions, including:

  • Providing more information and documentation
  • Waiting to provide unconditional approval until after you’ve found the property you wish to purchase
  • Setting a specific home loan limit that you can borrow up to

A lender may grant conditional home loan approval when your loan is almost fully approved, but they just require additional information. So, you may be asked to provide further documentation in order to reach unconditional approval (i.e. formal approval). For example, they may request bank statements dating back further than originally required, pay slips, a valuation of the property, or a completed sale contract from the property purchase.

What is unconditional home loan approval?

Unconditional home loan approval is where a lender formally approves you for a loan, and there are no other conditions that you must meet. Essentially, it is home loan approval with no caveats or strings attached.

In this case, they have already looked through your application and supporting documents to assess your suitability for the loan. The lender will send you a notice of unconditional approval, and that’s when you can sit back and relax!

However, unconditional home loan approval doesn’t last forever. Unconditional approval is usually valid for three to six months, depending on the lender.

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Is home loan pre-approval conditional or unconditional?

When applying for a home loan, you might want to consider getting home loan pre-approval. Home loan pre-approval is essentially an indication from a lender that they are likely to approve you for a specific home loan amount.

Home loan pre-approval is not unconditional. Lenders have the ability to refuse you a specific home loan, even if they did initially pre-approve you for the same product. This usually comes down to a couple of reasons:

  • Your financial situation has changed (a lot can happen in the 3-6 months that pre-approvals usually last for)
  • The lender’s lending policies have changed
  • You request to borrow more than your pre-approved loan amount
  • You were unable to satisfy other conditions imposed by the lender (e.g. providing more documentation).

Can a home loan be denied after unconditional approval?

It is highly unlikely that a lender will deny your home loan after issuing unconditional approval. However, it is still possible and this will usually be indicated in the loan approval terms and conditions.

The main reason a home loan will be denied after a borrower receives unconditional approval is due to a change in the borrower’s financial circumstances. For example, if you lose your job, a bank may doubt your ability to repay the loan. If your financial situation doesn’t change dramatically, you can generally rest assured that you will get your home loan.

You may also risk losing your mortgage approval if you are required to pay Lenders Mortgage Insurance (LMI). When you are subject to LMI, you must also be approved by the lender’s insurer. If they read over your application and deem you to be too high risk, you may lose your unconditional approval.

Other reasons for a lender rescinding their offer of home loan approval could include suspected fraud or error.

A mortgage broker can provide guidance about what home loans you are most suitable for. So, before you get ready to buy a property, research your home loan options carefully. Chat with a Lendi Home Loan Specialist for free expert advice.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: new purchase, home loan, refinance, lender, conditional approval, formal approval, pre approval, lmi (lenders mortgage insurance)

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