What Is Home Loan Pre-approval? A Simple Plain English Answer

Name: Mortgage Broker Brisbane - Hunter Galloway
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Thinking about buying a home? One of the most important first steps is securing a pre-approval, which is a formal indication from a lender of how much they’re willing to lend you. It’s a crucial step that not only tells you your borrowing power but also makes you a more confident and competitive buyer. This guide, written by an award-winning mortgage broker in Brisbane, will walk you through what pre-approval is, why it’s a non-negotiable part of the home-buying process, and how to get one that’s genuinely reliable.

Let’s Dive In

What Is Pre Approval?

A pre-approval is an indication from a lender that they are willing to approve your loan when you find the right property. It is also known as conditional approval, indicative approval, approval in principle or home seeker, depending on the bank you use.

Basically, a pre-approval means the bank will lend you X amount of money, provided you find a suitable property and your income and circumstances don’t change.

Having a pre-approval allows you to make stronger offers on property with shorter finance terms, meaning you can get a better deal and buy the home of your dreams sooner.

In some cases, a pre-approval is not assessed by the bank or lender’s credit department, and, in all cases, a pre-approval is not assessed by the Lenders Mortgage Insurer (LMI).

Always remember that a pre-approval tells you that a bank or lender is highly likely to approve your loan when you apply, but it’s never a 100% guarantee

Why Is A Pre Approval Important?

A pre-approval is an important part of the home-buying process. Here are some of the reasons why it is important.:

You will be able to know how much the bank is going to lend you. No more guessing your borrowing capacity, as the bank will just tell you how much they are willing to lend you.

Having a pre-approval means you will be able to calculate the actual amount of deposit you are going to need. You will know if you need to add a little more to what you have already saved or if you are good to go with the deposit you already have.
Once you know how much you can borrow, you can determine what your cash flow will look like after you’ve purchased your new home.
Just because a bank says they are willing to lend X amount does not mean you have to borrow all of it. A pre approval helps you know how much to budget to purchase your new home. It helps you also determine your walk-away price, which is the price you are not willing to go beyond.
It is even more important to have a pre-approval in a competitive property market because we often see first-home buyers missing out on their perfect homes because they weren’t organised and could not put their best offer forward.
Sometimes, not having a pre-approval can actually cost you money. For example, if you are successful at a property auction, you have to put down a 5% deposit on the day, but then you apply for a home loan through your bank only to have it knocked back because of the type of property or your job status. There is no way to get your deposit back at this point because most states have no cooling-off period when buying at auction. So, on a property worth $400,000, you could lose $20,000 by not having a pre-approval.
A pre approval saves you a lot of time. The evaluation for a loan is a lot quicker and less stressful than the alternative where you don’t have a pre-approval—you’re running around looking for payslips and tax returns, and you might miss out on government schemes if you are not organised.
One of the advantages of having a pre-approval is negotiating power. Having a pre-approval is a game changer. Since you are confident in how much you can afford, you can offer a higher price than the asking price and secure your property immediately. You can also negotiate a lower price but attractive finance terms of 7 days instead of the normal 14 days. A pre-approval is a powerful tool in negotiating the price of a property.

A pre approval can help you identify any issues you may not be aware of. We had a client recently who was an unknowing victim of identity fraud and had a default of $15,000 from Citibank. If he had not gone through the pre approval process, the bank would have knocked back his loan. But we managed to clear the identity fraud, and he was good to go.

Having a pre approval is very important in a changing market. A couple of years ago, when the interest rates were stable, it meant the bank’s assessment and your borrowing capacity stayed the same.

Fast forward to 2024; it’s a completely different situation. What can happen is the banks might assess you today and say yep, we are happy to give you $500,000 based on the current interest rate, but next month, if the interest rates go up, the repayments increase and your borrowing capacity can also decrease.

However, if you get a fully assessed pre-approval, you’ll know that for the next 90 days with the right bank, they’ll lock in that assessment rate, and they’ll give you the confidence to know that your borrowing capacity is not going to change even if interest rates change.

CASE STUDY: Getting A Pre-approval In A Changing Market

James is a first homebuyer who spoke to us in December 2022, saying he was considering buying a place. We went through the pre approval options with him. But he then said he didn’t want pre-approval right now because he thought the market was going to drop, and he would wait until next year (2023) to see what happens.

We told him that if he applied for a pre-approval now, we could lock in his assessment rate, and the bank would give him that piece of paper saying he is good to go for the $500,000, and he could be confident in that for the next 3 months. But he still decided to wait.

He contacted us a few months later, saying he was ready for the pre-approval. But there had been 2 rate rises, and his borrowing capacity had been reduced by $60,000!

So, getting a fully assessed pre-approval is important, especially in this changing market.

When Is The Right Time To Get A Pre-approval?

You should get a pre-approval before you start shopping around for properties. Although pre-approvals aren’t 100% bulletproof, they can give you confidence when putting offers on properties.

Getting a pre-approval before you start checking out properties will help you narrow down your search and look for properties you can actually afford in the longer term.

A pre-approval allows you to budget and work out your lending capacity—you get a full understanding of what your loan repayments will look like and understand the ongoing commitments without any mortgage shock once you find the right property.

Knowing your maximum budget means you won’t waste time chasing properties that are outside your price range or getting your heart set on a property that you absolutely love but is outside your budget.

Getting pre-approval before you start looking for properties is important because not all banks will accept all types of properties. Some banks will not accept high-density towers in the city or homes close to high-tension power lines…

Ultimately, a pre-approval will give you the confidence to start looking at properties, talking to real estate agents and negotiating, knowing you can afford that particular property you’re interested in.

How To Use Pre-approval As A Bargaining Chip

Having a fully assessed pre-approval is a powerful tool. It gives you an edge over other buyers. You can use a strategy we call ‘reduce, remove, and replace’. This applies to the finance clause in your offer.

The finance clause is a buyer’s safety net. It protects you if your loan falls through. With a solid pre approval, you have three options.

Option 1: Remove the Clause

You can remove the finance clause entirely. This makes your offer very attractive to the seller. It signals a high level of confidence. However, you must be careful with this option.

If your loan is not approved, you are still bound to the contract.
Failing to meet terms can result in a significant financial penalty.
Only take this step after consulting with your broker or solicitor.

Option 2: Reduce the Terms

You can reduce the time frame of the finance clause. Standard terms might be 21 days. With a pre-approval, you can often shorten this. You can reduce it to as little as seven days.

A shorter term is appealing to sellers. It means a quicker, more certain sale for them. The reduced time frame is dependent on several factors, including:

Lenders Mortgage Insurance (LMI) requirements.
Valuation needs for the property.
Your lender’s current processing times.

Option 3: Replace the Clause

You can replace the finance clause with a different condition. One option is a “satisfactory bank valuation clause.” This protects you in a specific way.

The contract would be conditional on the bank’s valuation.
You can only exit the contract if the valuation is lower than the contract price.

Expert tip: Always have your solicitor or conveyancer review any changes to a contract. This ensures your interests are protected and all changes are legally binding.

Case Study: Using A Pre-approval As A Bargaining Tool

Dylan and Kennedy were first-time homebuyers. They spent eight months hunting for a property. Their first broker told them pre-approval wasn’t necessary. He advised them to simply make offers with a 21-day finance clause.

This advice cost them. They found three perfect properties. Their offers were all rejected. In one case, a lower offer was accepted instead. This was a tough lesson. Their offers were not seen as strong.

The Problem

Dylan and Kennedy lacked negotiating power. Without a formal pre-approval, their offers were weak. The 21-day finance clause was a liability. It gave sellers an easy excuse to reject their offer. They were “spinning their tyres” in a competitive market.

The Solution

They were referred to us. The first thing we did was explain the power of a fully assessed pre-approval. We helped them get one. We then showed them how to use it as a bargaining chip.

Dylan and Kennedy took a bold approach. When they found the next home, they removed all clauses except for the building and pest inspection.

The Result

This new strategy worked wonders. Their offer was accepted the very same day. They had finally secured their dream home. This story shows how a simple pre-approval can change your home buying journey. It proves it is a powerful tool for negotiating. It helped them get a winning offer, even when others failed.

What Documents Do I Need to Get A Pre-approval?

Getting your documents ready is the first step. It helps make your application smooth. Lenders want to see the full picture. This ensures you can comfortably repay your loan. This is a great place to start your pre approval journey.

Here is a simple checklist:

Proof of Income:

Lenders need to verify your income. It shows you can make repayments. You’ll need to show where your money comes from. This includes your salary and any other earnings.

For employees: Provide your two most recent payslips. We also need your latest tax return. A letter from your employer is also helpful. It confirms your job and salary.
For self-employed: You’ll need two years of tax returns. An accountant’s letter works well, too.

Proof of Identity:

This is all about confirming who you are. We need to prevent fraud. You must provide a few key documents.

You can use your driver’s license.
A passport is another great option.
Other forms of government ID may work.

Proof of Savings and Expenses

Lenders must understand your finances. They want to see your savings history. This shows you are a good saver. They will also look at your living expenses. This proves you can manage your money.

Provide bank statements.
We usually need at least three months of statements.
This gives a clear picture of your finances.

Details on Existing Debts

Your current debts impact your borrowing power. Lenders will look at all your liabilities. This includes credit cards and personal loans. We’ll need a statement for each debt. This helps us accurately calculate your pre approval amount.

What Is The Pre-approval Loan Process?

Below are the steps involved in the pre-approval process:

Sign an application form given by your mortgage broker.
Provide proof of loans, credit cards, savings, and income.
After completing the initial assessment, the mortgage broker will recommend several lenders and loan options.
Once you have chosen a bank, the loan application and all the documents are submitted to your broker.
The lender assesses your application and gives you a home loan pre-approval.

The pre-approval process differs from bank to bank and depends on which mortgage broker you use. Here at Hunter Galloway, we have a very thorough process to help you get a reliable pre-approval. Our process is as follows:

Initial free assessment. During this call, one of the brokers will quickly review your financial goals, your financial situation, and your eligibility for a home loan. We’ll ensure you’re ready to buy and help you decide the next steps for your home-buying journey.
We collect your financial information. Your primary contact at this stage is the Credit Analyst. The information we collect is:
- Your Details. We need to collect some basic details about you and your co-applicant (if applicable). This includes your contact information, residential details, employment situation, income, assets and liabilities. We do this using a simple form.
Your Supporting Documentation. We will ask for some supporting documentation to help us review your file. Depending on your situation, this will include payslips, bank statements, and other documentation. We collect this using a secure, encrypted online tool.
We do a credit analysis. Once we have collected your details and documentation, our expert credit analysis team gets to work. We have developed a systematic review process to assess your chances of getting your home loan approved. This process is split into three core components:
- Your credit file. Our analysts will comb through your credit report to ensure it is accurate. We will ensure that any debts recorded are correct and that your payment record is accurate. If there are defaults, we will review them to ensure they are genuine and reflect your actual credit situation.
- Employment history, job, and income. Your length of employment, job type, and income greatly impact which banks or lenders will be willing to offer you a loan.
- Your deposit. Your deposit is the other main factor in your ability to get a loan. We will review your deposit and access to other funds (such as grants) to see whether you have enough deposit to qualify for a loan.

We take the information gleaned from the credit review process and use a custom loan policy checker that checks over 4,890 data points across our panel of lenders to see which lender will be your best option.

We send your information to the bank or lender. Once our internal credit team and your broker have reviewed your file, we will send your pre-approval application to your chosen bank or lender. We will work with them to complete your pre-approval as quickly as possible, but bear in mind that this takes time—usually 1 to 3 weeks.

Once your pre-approval is complete, we will give you a call to go through the details and give you the resources and tools you need to get out there and find your new property.

What Are Some Common Approval Conditions?

In most cases, a pre-approval has conditions that need to be fulfilled before the loan can be unconditionally approved. These can range from generic conditions, like subject to valuation, or specific ones, like obtaining a letter from your employer.

A few common bank terms & conditions include:

Validation of all details provided to ensure they are true and correct.
Receipt of all necessary supporting documentation. We have an application checklist that you can download and fill in.
Satisfactory valuation for the proposed security property(s). Where a bank requires a valuation to be completed, we will arrange for this to be undertaken.
Lender’s Mortgage Insurance approval, if required.
No significant change in the customer’s financial position.

Once all of the conditions are satisfied, the bank can issue loan agreements(s). The loan agreements(s) and other documentation will set out requirements to be met before loan funds are made available.

You must sign and return the loan agreements(s) within the first 90 days from the date of this letter, or they may require you to revalidate your financial position.

How Do You Know If You Can Rely On Your Bank's Pre-approval?

Not all banks are the same when it comes to assessing a pre-approval home loan. There are two types of pre-approvals, and one of them is more reliable than the other.

The 1st one is what we call a coffee shop approval, and that’s where you rock up to the bank and say hey, I want to get pre-approval for a $300,000 home. Can you give it to me? They put it in the system, and the system spits out a response that the bank can definitely do that based on the numbers you gave them. But no one’s actually looked at your living expenses and your bank statements. No one’s checked if you’ve got gambling or bad credit or if you’ve got a job whose income they might not accept, e.g. if you are a casual worker or contractor. This pre approval is very unreliable.
The 2nd one is a fully assessed pre-approval. This pre-approval has generally gone to a human who actually sits there and looks at your payslips, your bank statements, your financial situation and your savings to see if they are genuine. Then they will give you a pre-approval of, say, $300, 000 and it’s been fully assessed. Now, all they will need to see is a contract of sale for the home that you want to buy and live in. This type of pre approval is more reliable.

It’s important to remember that in most cases, a pre-approval is just an indication that the bank is okay with considering approving your loan. They may complete a credit check and not check any of your documents and wait until you lodge a full mortgage application to do this.

A full mortgage application is made when you find a property, which means the lenders will only complete the entire assessment of your loan—verifying your payslips, bank statements, income information, savings information and any liabilities you have—to be 100% sure they can lend you the money.

Unfortunately, if you have gone out and got pre-approval from a bank, the lender is under no obligation to fully approve your loan once you have found a property. They can say your situation has changed and knock you back.

Does Getting A Pre-approval Affect My Credit Score?

The answer depends on the type of inquiry. Not all credit checks are the same. Some won’t affect your score.

Soft vs. Hard Inquiry

A soft inquiry is a preliminary check. It happens when you check your own credit. Lenders also use them sometimes. This type of inquiry does not hurt your score. A hard inquiry is different. It occurs when you formally apply for credit. This includes applying for a home loan. A hard inquiry can slightly lower your score. It usually recovers quickly.

Be Strategic with Applications

You want to be smart about this. Limit your formal applications. Applying to multiple lenders in a short time can be a red flag. It may signal to lenders that you are a risky borrower

What Questions Can I Ask To Make Sure I Have A Real Pre-approval?

Our team at Hunter Galloway always requests that the lender or the bank fully assesses our clients’ pre-approvals. If, for some reason, this is not possible, we will let you know.

To make sure you are protected, below are a few questions you should ask your banker or broker to make sure your loan application has been assessed and you have a real pre-approval:

Has my application gone to the credit department?
What are the conditions of my approval?
Can I bid at an auction based on this approval?
Has the lender’s mortgage insurer approved my application?

If you are given an on-the-spot or system-generated approval, your home loan was never really approved. In this case, your loan could be declined in the future.

As you can see from the example above, the bank hasn’t fully assessed the home loan application. While the details entered into their lending system are acceptable, an actual credit assessor hasn’t reviewed the application to double-check that the numbers match—for example, that the income details entered match the payslips provided.

A formally approved loan is not subject to any further approval conditions

Are There Any Specific Lenders That Provide Unreliable Approvals?

Again, you should ask your banker or broker the above questions. Still, you must be cautious of any system-generated approvals from St George Bank, Westpac Bank, Suncorp, ANZ, NAB or any other bank that gives on-the-spot pre-approvals.

While many of these banks may complete a credit check and provide approval in principle, the credit department hasn’t assessed your application. Therefore, the bank could change its decision to lend you the money at a later date.

If you aren’t sure, get in touch with our team. Call us on 1300 088 065 or get in touch online so we can review it for you.

At Hunter Galloway, we work with lenders who will verify your income and deposit information to ensure you have a verified pre-approval.

What Are Some Common Pre-approval Mistakes?

1. Thinking your pre-approval is the same as a formal, unconditional approval.

We have been mentioning this quite a lot in this article, and this is because it is crucial to keep it in mind always. Getting a loan after a pre-approval is subject to getting your updated income information, obtaining a valuation to ensure the property is suitable and an updated credit file.

2. Thinking that you can purchase any type of property.

Sometimes, after the pre-approval, the type of property that you ultimately purchase may be deemed unacceptable. Some banks restrict lending for units, while others restrict you based on bushfires or flooding restrictions. So make sure the property you want to purchase is acceptable to the bank before getting the pre-approval. As a broad rule of thumb, make sure you double-check with your broker before buying any property that fits these criteria:

Smaller than 50 square meters inside
Land size over 2 hectares
Doesn’t have standard title and zoning
Not in a major town or city
Includes incentives like furniture packages or rental guarantees
Is run down or in disrepair and needs lots of work to fix up

3. Not knowing that the bank and the insurer are two separate entities.

This is a really big issue. Let’s say the bank has taken the necessary steps and issued a fully assessed pre-approval. You’ve got your golden ticket, but this may be short-lived because, whilst you meet the lender’s criteria, you may not necessarily meet their mortgage insurance. For example, if your property is close to high-tension power lines, it might be acceptable to your bank but not to your insurer.

4. Not knowing you are stuck with the bank you got the pre-approval from.

You should only get a pre-approval from one bank at a time to avoid damaging your credit score by making many applications in a short period. So, if another bank or lender announces a new, better rate, you must re-apply for a pre-approval (potentially damaging your credit file) or accept the increased costs of staying with your current lender.

5. Thinking pre-approvals last indefinitely.

Most pre-approvals only last for 90 days. Some banks will allow 180 days, but either way, if you cannot find the right home within that time frame, you’ll need to re-apply for another pre-approval. That means wasted time and effort on your part, plus you’ll have to hit your credit file again in 90 days for an updated pre-approval.

What's Next When You Are Pre-approved?

Now it’s time to go shopping! Follow these steps:

1. Determine how much you are willing to spend—your budget.

For example, you may be pre-approved for $500,000 but decide you want to only spend $450,000

2. Start looking on RealEstate, Domain, and local real estate agents' websites to find a property to buy.

When you’re looking online, be sure to select the bracket that you want to purchase in. So, let’s say you’re looking at a $500,000 purchase. You can search for houses between $400,000 and $500,000. An interesting thing we found in the past is that sometimes you’ll get higher-priced properties that come up in this bracket. So, reduce your bracket a little bit further—maybe from $300,000 to $500,000, which will give you a far larger range of properties to look at. The best part of these websites is that you can set up real estate alerts, so when properties you like come up on the market, you’ll get an email notification and be the first to view them.

3. When you find the right property, do your research and find as much information as you can online.

You can use websites like Onthehouse and RP Data. Some sites like RP Data will charge you a fee to obtain a report or even require a subscription. Luckily, here at Hunter Galloway, we’ve got access to RP Data! Feel free to contact us for any reports you need; we’re only too happy to provide them.

4. Once you have done your research, you make an offer on the property.

At this point, it doesn’t hurt to get your conveyancer or solicitor to check over the contract before you go ahead. You want to ensure that you have standard finance clauses in the contract. Here at Hunter Galloway, we ensure that our first homeowners have the right terms to be competitive and protect them if anything goes wrong.

Frequently Asked Questions About Pre-approval

What does pre-approval mean for a home loan?

Pre-approval is a formal, conditional offer from a lender. It tells you the exact amount you can borrow. In real estate, it shows sellers and agents that you are a serious, qualified buyer. This is a powerful tool when making an offer.

Does pre-approval mean I am approved for a loan?

No, a pre-approval is not a 100% guarantee. It is a strong indication. Final approval is conditional. It depends on factors like a satisfactory property valuation. Your financial situation must also remain stable.

How do pre-approvals work?

You submit an application with your financial documents. A lender or mortgage broker verifies your income, assets, and debts. Based on this thorough review, the lender issues a formal letter. This states the maximum loan amount they will lend to you.

How long does it take to get a pre-approval?

An automated pre-approval can take hours. A fully assessed and reliable one may take one to three weeks. It depends on the lender’s processes and the complexity of your finances.

How long is a pre-approval valid?

Most pre-approvals are valid for 90 days. If you don’t find a property within this time, you will need to re-apply. This ensures your financial details and borrowing capacity are up-to-date.

Does getting a pre-approval affect my credit score?

A formal application for pre-approval involves a hard credit inquiry. This can slightly lower your credit score. However, a single inquiry has a minimal effect. The score usually recovers quickly.

What documents do I need for a pre-approval?

You will need to provide documents that prove your identity, income, and financial history. This includes recent payslips, tax returns, bank statements, and details on any existing debts or liabilities.

Do you need pre-approval to make an offer?

You do not technically need pre-approval to make an offer. However, it is highly recommended. It allows you to make a much stronger offer. You can also negotiate better terms, such as a shorter finance clause.

What happens after I get my pre-approval?

Now it’s time to go property shopping! You know your maximum budget. You can confidently look at homes and make an offer. After finding a property, your broker will work to get you full, unconditional approval.

Why are some pre-approvals unreliable?

Some banks offer on-the-spot, system-generated approvals. This is often called a “coffee shop approval.” It has not been reviewed by a human credit assessor. A fully assessed pre-approval is much more reliable and gives you greater certainty.

Next Steps And Getting Your Home Loan

If you want to get a pre-approval or buy a home, speak with one of our experienced mortgage brokers to walk you through the next steps of home loans in Brisbane.

At Hunter Galloway, we help home buyers get ahead in this competitive market, and we give you the actual strategies that have helped other home buyers like you secure a property when there have been 5 other offers on the table! Enquire online or give us a call at 1300 088 065.

Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to helping make your home loan journey as simple as possible.

If you want to get started, please call us on 1300 088 065 or book a free assessment online to see how we can help.