Pre-approval is not the green light buyers think it is
feels like a bank saying yes. A letter arrives with a dollar figure on it, and every decision that follows starts to assume the money is already in hand. That assumption is where buyers get hurt. Pre-approval is a snapshot of your finances at one point in time, not a loan contract. The lender can reduce it, withdraw it, or decline formal approval for reasons that have nothing to do with you.
- 18% went $50,000 over on a $500,000 purchase, adding more than $3,500 a year to their loan repayments .
- 70% of first home buyers bought with less than a 20% deposit, which means most rely on LMI approval as well as lender approval .
Overconfidence in borrowing capacity is one driver of that blowout. The NSW Government states plainly: "Getting pre-approval is not a guarantee that you will be approved for a home loan" . Treat it as any less conditional than that and your deposit is on the line.
What the lender actually checks at pre-approval
, also called conditional approval or approval in principle, is a lender's preliminary assessment of your borrowing capacity. NAB defines it as when "a lender has agreed, in principle, to lend you money towards the purchase of your home but hasn't proceeded to a full and final approval" . Westpac describes it as when "a lender agrees to extend you a home loan up to a certain limit, subject to certain conditions" . The key phrase is subject to conditions.
When you apply, the lender assesses four things :
- 1Your income. Payslips, tax returns, or business financials if you are self-employed.
- 2Your expenses and liabilities. Existing debts, credit card limits, living expenses, and any financial commitments.
- 3Your credit history. A hard credit enquiry is lodged, which appears on your credit file and remains there for 5 years .
- 4Your identity. Standard 100-point ID verification.
What the lender does not assess at this stage is the property itself. There is no valuation, no title search, and no assessment of whether the specific property you want to buy meets the lender's criteria. Those checks only happen after you find a property and apply for formal (unconditional) approval .
Pre-approval is typically valid for 90 days, with some lenders offering up to 6 months . After it expires, you reapply with updated financial documents, and your circumstances may have shifted by then.
Lender | Pre-Approval Validity |
|---|---|
NAB | 90 days |
Westpac | 90 days (renewable) |
Most lenders | 3 to 6 months |
Why a pre-approval letter can evaporate between offer and settlement
Pre-approval is not a locked-in commitment. The lender can reduce or withdraw it at any point before issuing unconditional approval. The most common reasons :
Your financial situation changes. You lose your job, change employers, take on new debt, miss a repayment, or reduce your working hours. Any shift in your income or liabilities between pre-approval and formal application gives the lender grounds to reassess.
The property valuation falls short. The lender orders an independent valuation of the property you want to buy. If the valuer assesses it at less than the purchase price, the lender bases your maximum loan on the lower figure . You then need to cover the gap yourself or the loan falls through. Pre-approval does not protect you from a .
The property does not meet the lender's criteria. Some property types are considered higher risk: small studio apartments, high-rise units in oversupplied markets, rural or remote properties, or properties needing major structural work. The lender may decline to finance them regardless of your borrowing capacity .
The lender changes its lending criteria. Lenders update their policies regularly and APRA's regulatory requirements also shift. From 1 February 2026, APRA requires lenders to cap loans with a debt-to-income ratio of 6 or above at 20% of new lending . Policy changes like this can affect whether your loan proceeds, even if nothing about your personal finances has changed.
The mortgage insurer declines. If your deposit is below 20%, most lenders require Lenders Mortgage Insurance. The insurer makes a separate assessment using criteria that are often stricter than the lender's, and a lender approval does not guarantee an insurer approval .
Pre-Approval Gives You | Pre-Approval Does NOT Give You |
|---|---|
A realistic borrowing range before you start looking | A guarantee the lender will approve your final loan |
Confidence to make conditional offers within your range | Permission to make unconditional offers |
Evidence to agents and sellers that you are a serious buyer | Protection if the property valuation falls short |
Early identification of credit file issues you can fix | A locked-in interest rate (unless you request a rate lock) |
A head start on paperwork so formal approval is faster | Certainty that your circumstances won't change |
Never make an unconditional offer based on pre-approval alone. If you sign an unconditional contract and your loan is then declined, you are still legally required to settle. The consequences include forfeiting your deposit (typically 5% to 10% of the purchase price), paying the seller's legal and re-marketing costs, and potentially being sued for any loss the seller incurs if they resell at a lower price.