After you receive your conditional home loan or approval in principle, it’s time to begin your search for a suitable property in earnest.
Once you navigate the early stages, it’s time to advance to the next phase of the home loan application process and get approved for a loan without any conditions attached.
An unconditional home loan approval will give you the confidence to move towards your home ownership goals.
This article covers useful information for getting unconditional approval for a home loan in Australia.
What is Unconditional Approval?
Unconditional approval is also known as formal approval. Since you have submitted all the loan documents and fulfilled all the conditions, your lender has formally approved you for a home loan.
In short, your lender has studied your financial situation, run a check on your credit file and is now ready to offer you a home loan.
On granting unconditional approval, your lender will send you a formal letter stating that your loan application has been approved. Once you have read and signed your consent, the lender will initiate the process of releasing funds to purchase you have identified for purchase.
You should know that receiving unconditional approval doesn’t mean that you’re obligated to accept the loan if you’re not comfortable with the conditions. However, if you’re ready to accept, the final step will involve reading and signing loan paperwork.
If you need professional advice, ask your mortgage broker to explain parts of the document that you do not understand.
Conditional Approval vs Unconditional Approval
The following comparison highlighting the difference between conditional and unconditional approval will help you understand the terms better.
Conditional approval means though your loan has been assessed and broadly approved, your lender will still require some bits of information from you before sanctioning your home loan application.
This could include additional pay slips, older bank statements, your new property valuation details and a signed contract of sale. Sometimes, depending on your bank or lender may have further requirements. Until such conditions are met, your loan application will be conditionally approved.
In contrast, unconditional loan approval indicates that you have met all the conditions for your loan to be unconditionally approved. Therefore, to progress on your home-buying journey, you should work towards receiving an unconditional letter saying that you have been given a formal home loan approval.
It may take around 2 weeks after submitting your home loan application to receive an offer letter for conditional approval. Moreover, conditional approval is usually valid for 3 months.
To be unconditionally approved, it usually takes between 4-6 weeks from first submitting your application to complete the settlement process. Depending on the lender, an unconditional loan approval usually lasts 3-6 months from the approval date.
For both conditional and unconditional approval, you should check the timeframe with your credit representative so that you can complete the process well within time.
You can focus better on your property search when you receive conditional approval. You will have a clear idea of your specific home loan limit. Furthermore, it’ll show real estate agents that you are a serious buyer during further negotiations.
With unconditional home loan approval, you have selected a property, and the banks will conduct a pre-settlement inspection to ensure you can afford it.
Your mortgage broker may guide you through the pre-approval application process and property valuations for a conditional home loan approval.
On the other hand, for unconditional home loan approval, it is advisable to seek advice from a legal expert and your mortgage broker before signing the loan documents.
A conditional approval implies that you only meet the initial lending criteria. There’s no guarantee of getting the loan if your financial position changes. However, once you are unconditionally approved, you may rarely be denied a loan.
Can a Home Loan be Denied after Unconditional Approval?
In general, the chances of home buyers getting rejected for a home loan after receiving unconditional mortgage approval are low. However, it still is possible.
Some instances when your loan may be denied even after receiving formal approvals include:
Change in Financial Situation
A drastic change in your financial circumstances, i.e., if you lose your job or commit fraud. It may cause your lender to rethink your ability to make repayments, and they may retract their offer.
Lenders Mortgage Insurance (LMI)
If you cannot contribute a significant deposit, you may have to take LMI. In that case, you must also be approved by your lender’s insurer. Therefore, if both these parties become apprehensive and consider you a significant risk, you could lose your unconditional approval.
In the letter offering unconditional approval, your lender will likely incorporate a clause that approvals are “subject to further bank/lender requirement.” This means your lender can still deny your loan even after formal approval.
Benefits of Unconditional Approval
Receiving unconditional approval on your home loan is a strong indicator that you will settle on your home loan. Here are our top picks for why having unconditional approval gives you an advantage:
1. Greater Confidence to Purchase Your Dream Home
An unconditional loan approval offers you confidence that you’re closer to settlement as your lender has accepted your chosen property and also, you have met their conditions. It implies that you’re in an excellent position to sign the sale contract.
2. Home Loan Assurance
Receiving unconditional approval is the closest to receiving a guarantee that your home loan is approved and you will go ahead with settlement. This can help when competing with other buyers in a hot property market.
3. Determine Your Home Ownership
Once you have received formal approval, you decide if you want to purchase the property as either an individual owner or with a co-borrower. This is an important decision as it will determine your future responsibilities should you need to sell the property or face financial difficulty.
4. Negotiate a Better Interest Rate
If you’re unhappy with the interest rate or fees on your loan document, it may be possible to request a better rate, considering all your documentation is in order. Nonetheless, this would vary from lender to lender and on what you are negotiating.
However, after receiving an unconditional approval letter, further negotiations may result in reassessing your mortgage application and offering a new unconditional letter. This may put you at risk of losing the home if another party makes a better offer in the meantime.
How to Get Unconditional Home Loan Approval?
You can do a few things if you’re looking to get an unconditional home loan approval without any issues:
Have Strong Savings
A good rule of thumb is to save at least 20% of the property’s value. This will help you avoid paying Lenders Mortgage Insurance (LMI) and make getting a loan much more accessible. Sometimes lenders deny a formal approval, even after pre-approvals, because the buyer hasn’t saved up a big enough deposit.
Submit the Pending Information
Home loan formal approval is based on certain conditions, such as providing the required documents. Therefore, be sure to have everything in order before you apply for formal permission so there are no delays.
Maintain Your Financial Position
One of the final approval conditions is that your financial situation and borrowing power must remain unchanged. That means no new debt and no changes to your employment status. However, if something does change, be sure to let your lender know as soon as possible.
Liaise with your real estate agent to organise faster property access. This will make the valuation process quicker and easier, and you can avoid potential delays.
How Long Does it Take to Get Unconditional Approval?
Aussie banks and lenders have their terms and conditions, approval time and settlement period. Nonetheless, once you apply, the average time for full approval of home loans is usually 4-6weeks.
To advance from conditional home loan pre-approval to being unconditionally approved, your bank has to verify all your outstanding information. This also includes your property valuation. These formalities may take 1-7 days to complete, and you’ll receive your unconditional loan approval.
What Happens after Unconditional Approval?
After the bank confirms your unconditional home loan approval, here’s what usually follows:
Your lender will send you the home loan documents within a week. You should read through carefully and check for any errors or sections you don’t understand. If needed, consider taking professional advice to ensure the terms and conditions suit your circumstances. Finally, if you’re okay with everything, you must sign the documents and hand them back to your lender.
At this point, you should start arranging for your home insurance. The costs will vary according to the property, i.e., whether you’re buying a unit, house or vacant land. Therefore, it’s advisable to start your research early so that you can get a fair deal.
Apply for grants
Home buyers may be eligible for specific grants, depending on their State or Territory. After you get approved for your home loan, apply for the relevant grants. These grants can help you save a lot of money. Read about First Home Buyer Grants 2022 to know more.
After your documentation is finalised, a pre-settlement inspection of the property is usually done during the week before settlement day. This ensures the house is in the same condition as when you signed the sale contract. You should ensure that inspections such as pest, electricity and building are as mentioned in your agreement.
If everything’s alright, you’ll need to sign the inspection document. If you notice any problems, you’ll have to speak to the owners to resolve the issues with the sellers. Also, check with your conveyancer or solicitor if you can postpone the settlement until the problem is fixed.
This is the final stage. Property settlement involves transferring property ownership from the seller to the home buyer. It is a legal process, and a settlement agent or solicitor will help facilitate it.
You’ll also need to pay stamp duty. Once it’s paid, you’ll get the keys to your new home and the title deeds, indicating that you are now the new registered owner.
How Long Does Unconditional Approval Last?
An unconditional home loan approval is not lifelong approval. It is valid for around 3-6 months. So do check with your lender for the exact validity so you can complete your property purchase within the timeframes.
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The information in this article is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.