As a first-home buyer you need a pre-approval before you start house shopping. But what exactly is a pre-approval, why do you even need one and how does it work? We’ll take a closer look at this in the article.

What exactly is a pre-approval?

First things first, we need to understand what a pre-approval is. A home loan pre-approval is provided in writing by a lender (typically a bank). The pre-approval confirms how much money you may be able to borrow. This is also referred to as a ‘conditional offer’ of finance. A pre-approval will also contain specified conditions that must be met.

Once you receive your pre-approval you need to carefully check and ensure that you understand the conditions and what you need to do to meet them. Standard conditions could be:

  • Copy of signed sale and purchase agreement satisfactory to the lender
  • Registered Valuation satisfactory to the lender

The strongest pre-approvals typically include few conditions. When submitting your application for a pre-approval it is important that you provide the bank with as much information/documentation as necessary.

As a little side note, pre-approvals are usually free, so you really don’t have an excuse to not get a pre-approval before you go house shopping.

What you need for a pre-approval

As mentioned above, you need to provide the bank with certain information/documentation when submitting an application for a pre-approval, and if you have all your ducks in a row you will get the pre-approval much faster. Typically, the bank will ask for the following when you apply for a pre-approval:

  • ID
  • Bank statements
  • Proof of income
  • Confirmation of deposit
  • Address verification

The bank may ask for more information/documentation than above, but they will definitely need the above mentioned.

So why do I need a pre-approval?

Well, you need the pre-approval to know how much you can go house shopping for. It would be a real bummer if you fall head over heels in love with a house that cost $800,000, only to discover that the bank won’t lend you more than $600,000. But, not only is it a bummer, it is also a complete waste of your time and energy (and the agent’s and everyone else’s time). 

Get your pre-approval so you know how much money you can borrow so you can look at houses in the right price range. A pre-approval also shows the agent that you are serious about buying a house. Lastly, the pre-approval also means that once you do find the right home you will be able to move quickly to make an offer because you already know exactly how much you can spend.

How does a pre-approval work?

A pre-approval is valid for 60-90 days depending on the bank so just bear in mind that if you haven’t found a home within this time frame, you will need a new pre-approval. But, say you have your conditional pre-approval, and you have now found your dream home. Sweet!

Most banks and lenders will now ask for information about the property before they confirm your home loan. The bank will also need proof that you have property insurance before settlement.

So to sum up: you need to confirm the loan before your offer goes unconditional. However, most first-home buyers will need to make a conditional offer. By doing a conditional offer you usually have a standard 10-15 days to do due diligence. Just remember that the quicker you get due diligence done, the more attractive your offer is, and naturally an unconditional offer will be the most attractive, but most first-home buyers do a conditional offer.


Everything shared in this blog post is general financial advice. For financial advice tailored to you, please book a meeting with us.