How to Apply for Conditional Approval

As a first-home buyer, chances are you’re going to come across a bunch of different terms during the home-buying process that you’re unfamiliar with. Conditional approval could be one of them. 

Read on to learn more about conditional approval and how it could come in handy when it comes time for you to buy a property.

Conditional approval vs unconditional approval

Conditional approval, also known as pre-approval, means that the bank has assessed your borrowing capacity and is willing to lend you an amount up to a certain limit. While getting conditional approval isn’t a compulsory step in the home-buying process, being conditionally approved by a lender can demonstrate to sellers and real estate agents that you’re serious about buying a property and you’ve taken proactive steps to work out what you can afford. But just because you’ve got pre-approval up to a certain limit doesn’t mean you’re guaranteed a home loan for that amount with the lender. That’s where unconditional approval comes in.

You’ll receive unconditional approval once the lender has assessed your home loan application for a specific property and they’re willing to offer you a mortgage to fund the home purchase. Essentially, you’ve met all the conditions needed to qualify for a home loan with that lender. Because conditional approval isn’t necessarily guaranteed, it’s often a good idea to include a finance clause in your contract of sale to cover you in case your finance falls through.

How to apply for conditional approval 

While banks and lenders tend to have their own lending criteria, they’ll often consider the same factors when assessing your application for conditional approval. These days you can apply for conditional approval with most lenders online, otherwise you’ll need to give your bank a call or book an in-person appointment with a lending specialist.

Here’s some of the information and documents worth having on hand if you’re planning on applying for conditional approval.

Personal identification

Banks and lenders have to verify your identity before offering you a loan, so you’ll often need to provide several forms of photo and non-photo identification. 

You’ll need to provide information about your:

• Legal name,
• Date of birth,
• Residential address,
• Mailing address, and
• Occupation.

It’s also worth having photo ID, like your driver's license or passport, on hand.

Employment and income details

As part of the conditional approval process, the bank will want to know that you can afford to make any potential home loan repayments, so they’ll need your employment details and proof of income. The documents that you provide to verify your income depend on your employment status.

As an employee, you’ll usually need to provide either your most recent pay slip or copies of your bank statements showing your income and any additional allowances, bonuses, commissions or overtime from the past 6 weeks.

If you’re self-employed, you’ll often be asked to provide your two most recent tax returns and your notice of assessment. You might also need a letter from your accountant advising that your business makes enough profit to cover the business commitments and pay your salary.

But that’s not all. Income can also include things like:

• Rental income,
• Government payments and the pension,
• Investment income, and 
• Income from your superannuation fund.

Debts and expenses

Along with your income, you’ll need to provide details of any existing liabilities or debts and an overview of your current household expenses. This helps to give the bank an idea of your spending habits and whether or not you can afford to make your loan repayments. 

When it comes to your debts, you’ll need to disclose details of any:

• Existing home loans and other loans,
• Credit cards,
• Student loans, HELP or HECS,
• Lines of credit, and
• Overdrafts. 

As for your expenses, you’ll need to provide a detailed breakdown of the following:

• Food and household supplies,
• Utilities,
• Maintenance costs, body corporate fees and council rates (if applicable), 
• Insurance, 
• Communication bills and subscription services,
• Transport and automotive expenses,
• Medical, health and fitness,
• Entertainment and gifts.

Your bank or lender will cross reference your debt and expenses against your bank statements, so there’s no point in underestimating your household costs.

Credit score

Although you don’t need to provide details of your credit score to your lender, it can be a good idea to have a look at how you're tracking yourself. Your credit score is one of the main factors that banks and lenders consider before offering you conditional or unconditional approval. A good credit history and a high credit score indicate that you’re a reliable candidate for a home loan and you’re likely to consistently make future repayments on time. 

If your credit score isn’t looking so crash hot, this can be a good opportunity to work on improving it before you apply for conditional approval. From reducing the amount of debt in your name to paying your bills on time, there are a number of simple steps you can take to boost your credit score. There are stacks of free tools online, like Credit Savvy, that you can use to check your credit score.

It’s also worth noting that one of the factors that goes into calculating your credit score is the number of recent requests you’ve made. And because running a check is part of the process for getting conditional approval, it can often be best to stick to your preferred bank or lender rather than seeking multiple conditional approvals. Requests for conditional approval are recorded in your credit report, so it’s best to keep them to a minimum or risk damaging your score.

At Unloan, we’re here to help make the home-buying journey easier, which is why we’ve put together a bunch of resources to help you navigate the process. Or if you’re on the market for a refinanced home loan, we’ve got you covered with a range of great features. Check your eligibility today. 

‍

This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval; satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000. 

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

There are no fees from Unloan. However, there are some mandatory Government costs depending on your state when switching your home loan. For convenience, Unloan adds this amount to the loan balance on settlement.

* Other third-party fees may apply. Government charges may apply. Your other lender may charge an exit fee when refinancing.