What's the difference between conditional and unconditional approval?

When it comes to buying a home, it can be easy to get caught up in all the jargon that’s used. With that said, there are a few key terms that are worth understanding or you could end up in a bit of hot water. Conditional and unconditional approval are two phrases worth being across.

Conditional vs unconditional approval - what does it mean?

Conditional and unconditional approval are two terms that are often used to describe the status of your finance approval with a lender. Before starting the house hunting process, some buyers like to get pre-approval to get an idea of how much their lender is willing to lend them. 

Conditional pre-approval can help take the guesswork out of figuring out your borrowing capacity so you can focus on finding your dream home. This can be super helpful when it comes time to start house hunting because you’ll have a better idea of your budget. That way you don’t waste your precious time looking at properties that you can’t afford.

Conditional approval is based on a credit check, but there are also a few other conditions that must be met before your lender will formally approve your home loan. These conditions are generally detailed in the written pre-approval that they provide you with. 

On the other hand, unconditional approval essentially means that your home loan application has been approved based on the property that you want to buy. 

Just because you have conditional approval on your home loan, doesn’t mean that you’ll be guaranteed unconditional approval when you finally submit your loan application. Some borrowers make the mistake of assuming they have unconditional approval based on their conditional pre-approval. This can become a potential risk if you make an offer on a property that doesn’t include a finance clause only to find once your offer’s been accepted that you don’t actually have formal approval for a mortgage. It’s instances this this where knowing the difference between these two terms really comes in handy.

How to get conditional approval

When it comes to applying for conditional approval, most lenders offer the option of completing an online application. Otherwise, you can usually apply over the phone or at your local branch.

During the application process, your lender will assess your borrowing capacity based on a range of different information. They’ll ask you to provide a range of information, including proof of identity, proof of employment, debts and expenses, income and assets and savings. 

They’ll also typically complete a credit check to get an idea of your creditworthiness and previous financial behavour. It’s worth noting that this credit check could impact your credit score, so it’s generally best to get conditional approval from a single lender. Otherwise, you could risk your credit score taking a beating if you submit too many pre-approval applications. 

If your lender is happy with your application for conditional approval, they’ll provide you with written pre-approval outlining the conditions that must be met before they’ll grant you unconditional approval. 

Is conditional pre-approval worth it?

While unconditional approval doesn’t equal unconditional finance approval, it can provide a few advantages during the home-buying process.

• Understand your borrowing capacity: Sure, using a borrowing calculator can come in super handy to get a rough idea of your borrowing power, but there’s nothing quite like having an actual lender's stamp of (pre-) approval. Conditional approval is a great way to understand what your budget is so you know exactly what price range you should be looking at. 

• Demonstrates you’re serious: Having conditional approval can demonstrate to real estate agents that you’re a serious home buyer. This can come in handy at auctions, but it can be useful when putting in an offer on a home too.

• Provides you with confidence: When you have a clear idea of your borrowing capacity, it can give you confidence in making offers and decisions during the home-buying process. It helps to eliminate any uncertainties about your ability to secure financing.

• Speed up the approval process: As part of the pre-approval process, lenders will often review information and documents that detail your financial situation. Since you've already gone through the bulk of the loan application process, it can make finalising the purchase much faster. This can be especially beneficial in a competitive market where time is crucial.

• Easier negotiations: Real estate agents and sellers often prefer dealing with buyers who already have pre-approval as it indicates a serious and financially capable buyer. Plus, having pre-approval can help strengthen your negotiating position when making an offer on a property.

The clocks ticking on conditional approval

Just because you’ve got conditional approval doesn’t mean that it’ll last forever. As a general rule, most conditional approvals offered by lenders typically last around three months, but during that time things still aren’t set in stone.

A lender can withdraw their conditional approval at any time or reject your home loan application, but it often happens due to one of the following reasons:

• There have been significant changes to your financial situation,
• Your lender has uncovered errors in your application, 
• The lender’s lending requirements have changed since you applied for conditional approval, 
• You end up applying for a larger mortgage than your pre-approved amount,
• You weren’t able to satisfy the other conditions set out by the lender, or
• Your lender’s lender's mortgage insurance (LMI) provider has rejected your application.

At Unloan, we understand how daunting it can be as a first-time home buyer, which is why we’ve created a range of resources just for you in our Learn Hub. From navigating the home-buying process to learning about home loans, we’ve got you covered with our collection of tips, articles and clips.

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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, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

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