When is a mortgage pre-approval not really an approval?

Is your mortgage pre-approval worth anything? Possibly not

With Australia settling into a Covid-normal environment, and buyers enjoying continued low rates and generous government grants and incentives, the real estate market across Victoria is moving quickly (especially in the regions), and competition for properties is rife. It means that now, more than ever, timing is critical and any delays in confirming finance mortgage can see an offer on a home passed over.

To try and avoid this, enthusiastic buyers are turning to two options – one risky, one sensible.

Risky: When ‘pre-approval’ is not an approval

The risky approach sees buyers place an offer and sign a contract ‘subject to finance’, based on a so-called ‘pre-approval’, without actually knowing the real likelihood of that finance being approved. Therefore, the contract is only good if the purchaser can secure a mortgage in time, and even with ‘pre-approval, this is certainly not always guaranteed.

In most cases, a simple pre-approval from a lender is really no more than a guide to what the applicant may be able to borrow. Often it is applied online and based on unverified information and calculated via automated responses without an actual lending team making a thorough, individual assessment. Such ‘pre-approvals’ should not be taken as guarantees, but rather an indication of the price range a purchaser should be considering. In essence, they’re not pre-approving anything at all.

Pre-approval is not binding on the lender or the applicant.”

So, regardless of whether a so-called ‘pre-approval’ has been obtained or not, when the applicant does find a property, the lender will always want further details including the applicant’s most recent bank and income statements, evidence of their deposit and re-payment capacity, their financial situation and habits, as well as the lender’s own valuation of the property.

All of this requires additional paperwork, and in recent months, the major banks have been notoriously slow in even opening the file due to the huge influx in applications. A recent report in the Australian Financial Review* cited delays of up to three weeks before a lender even looked at an application.

That delay puts a strain on both the buying and selling parties, and if a purchaser can’t get confirmation of finance within the contract’s allotted timeframe (often just 14 days), the vendor may cancel the contract and go with a better offer. And the buyer is back at square one.

Sensible: Using a broker to get a more genuine pre-approval

Smart home buyers can avoid the stress and delay by using a mortgage broker to help them secure genuine, pre-approved finance before they make an offer to a vendor. The difference lies in the way the approval is managed and the information upon which it is granted.

Unlike a basic ‘pre-approval’ process, the procedure for securing a more genuine approval brings all the paperwork, evidence and documentation to the front – often before the buyer has even found a property.

The mortgage broker will look at the applicant’s financial position and make a basic assessment of borrowing capacity and lending likelihood, from which one or more mortgage products will be recommended. The broker will then help the applicant collate all the supporting documentation that the lender is likely to want and prepare them for any questions that may be asked, and then submit the application to the lender. Armed with this up-to-date and detailed information, someone in the lender’s assessment team will be able to make a more genuine calculation of the amount they’d be happy to lend.

While it is still not a full guarantee of a mortgage, since the lender is likely to want a valuation of the prospective property, it gives a much more accurate indication of the finance that a buyer will be able to secure. What’s more, with the file already opened, and much of the paperwork already done and signed off by the lender, delays in approval can be minimal, and probably only as long as it takes to conduct the valuation and receive any updates of the applicant’s income or bank statements.

These pre-approvals are typically open for 90-days before an extension needs to be sought or an application needs to be re-submitted. But again, since much of the information will still be on the lender’s file, subsequent applications should be smoother and faster.


Surprisingly, only around 20% of those planning to put an offer in on a property have secured finance already, according to the Australian Financial Review article and the Real Estate Buyers Association.

A WhiteStar mortgage broker can help you obtain a much more useful indication of what a lender is likely to approve.

The broker can streamline the process by helping you to compare mortgages, get all relevant information in order, submit an application, and receive a much more definitive answer from a lender about securing finance for your new dream home.

So if you’re thinking of buying a new property in the next few months, call one of our broking team and be one step ahead of the competition in Victoria’s spirited property market.

*Beware bank delays in mortgage approvals. AFR 20-21 February 2021