From Pre-Approval to Full Approval: Navigating Your Path to Property Financing
Understanding Pre-Approval vs. Full Approval in Property Financing
When it comes to purchasing a property, securing financing is one of the most critical steps. Among the terms you'll encounter on this journey are "pre-approval" and "full approval." These two steps are foundational to the mortgage process, and each plays a unique role in securing your property loan.
Let’s unpack what each term means, the distinctions between them, and how they shape your buying strategy.
What is Pre-Approval?
Pre-approval (also known as conditional approval) is an initial assessment by your lender estimating the amount they’re likely to lend you based on your current financial profile. During this stage, lenders evaluate several financial aspects, including:
Income and employment stability
Expenses and existing financial obligations
Credit history
Assets and liabilities
Once granted, pre-approval is typically valid for about 90 days. It serves as a preliminary framework, giving you a clear sense of your potential borrowing capacity. With pre-approval, you can confidently search within a price range that matches your financial situation, which can also enhance your credibility in the eyes of sellers who may perceive pre-approved buyers as more committed and financially secure.
However, pre-approval is not a guaranteed loan. The lender may still decline your application if circumstances change or certain criteria aren’t met during the final stages of the approval process.
What is Full Approval?
Full approval (or unconditional approval) is the ultimate confirmation that your lender is committed to providing the funds for your property purchase. This step is only reached after you’ve chosen a property and entered into a contract. At this stage, the lender will:
Review your financials once more to ensure no major changes have occurred
Conduct a property valuation to verify that the property aligns with the purchase price and meets lending criteria
Once you receive full approval, your funds are ready for settlement, marking the lender's complete commitment to financing your purchase. This final confirmation is crucial, as it reduces the risk of last-minute finance issues impacting the purchase.
Key Differences Between Pre-Approval and Full Approval
AspectPre-ApprovalFull ApprovalNatureConditional assessmentUnconditional confirmationTimingEarly in the property searchAfter a property is selected and a contract is signedRisk for BorrowerSome risk, as it’s not guaranteedMinimal risk, as the lender has committedProperty ValuationNo detailed property valuationIn-depth valuation to verify property’s worth
Understanding these differences is vital for managing your expectations and risk during the buying process.
Why These Differences Matter
While pre-approval can streamline your property search and demonstrate your financial readiness, relying solely on it can lead to challenges. According to recent data from CoreLogic, around 20% of pre-approvals do not progress to full approval. Issues like property valuation discrepancies or changes in financial circumstances can disrupt the process after an offer has been made.
This is why experts such as Bryce Holdaway and Ben Kingsley from The Property Couch suggest incorporating a "buffer margin" in your budget. By allowing for a buffer, you can reduce the financial stress in case of adjustments to loan terms, interest rates, or other variables that could impact your final approval.
Making the Most of Pre-Approval
Pre-approval, though not a guarantee, is a valuable tool for staying within budget and enhancing your negotiating power. Here are some tips to maximise the benefits of pre-approval:
Stay Updated: Regularly update your pre-approval if your financial situation changes or if your search extends beyond the approval’s validity.
Avoid Major Financial Changes: Try to delay big purchases or changes in employment until after receiving full approval, as these factors can impact your loan terms.
Consider Multiple Lenders: Exploring pre-approvals from different lenders can help you compare options, though keep in mind that multiple applications may affect your credit score.
When to Move from Pre-Approval to Full Approval
Once you’ve found your ideal property and signed a contract, it's time to work closely with your lender to secure full approval. Swift action is essential, as delays at this stage can impact settlement timelines, potentially resulting in penalties or even a contract termination.
Consider enlisting a conveyancer or solicitor to assist with the required legal documentation and any final checks the lender may need to complete the approval process smoothly.
Final Thoughts
Understanding the distinction between pre-approval and full approval is essential for navigating the mortgage process with confidence. While pre-approval is an excellent tool for setting your budget and showing sellers your financial readiness, it’s ultimately just the first step. Full approval is the final go-ahead that secures your financing and ensures a smoother path to settlement.
By approaching each stage of the approval process strategically, you can minimise financial risk and avoid setbacks as you move closer to your dream property.
