Pre-approval and formal approval are often confused — but they're very different things. One gives you permission to look; the other gives you the money. Here's what each means, when you need them, and how to get both.
Pre
Before you find property
Formal
After contracts signed
3–6
Months pre-approval valid
1–3d
Formal approval after val
What Is Pre-Approval?
Pre-approval (also called conditional approval or approval in principle) is a lender's indication that they would be willing to lend you up to a certain amount — subject to certain conditions. The key word is conditional. Pre-approval is not a guarantee that you'll get the loan.
To grant pre-approval, the lender assesses:
- Your income and employment stability
- Your expenses and existing debts
- Your credit history
- Your deposit and savings history
- Your general ability to service the proposed loan amount
What the lender has not yet assessed at pre-approval stage: the specific property you want to buy. Pre-approval is about you, not the property.
What Is Formal (Unconditional) Approval?
Formal approval — also called unconditional approval or full approval — is issued after you've found a property and the lender has assessed it as suitable security. At this point, the lender has:
- Confirmed your financial situation hasn't changed materially since pre-approval
- Had the property valued by an independent registered valuer
- Confirmed the property meets their lending criteria (location, construction type, title, zoning)
- Issued a formal letter of offer specifying loan amount, rate, and conditions
Formal approval is as close as you get to certainty before settlement. It means the lender is committed to funding the loan for this specific purchase.
Key Difference in Plain English
Pre-Approval says:
"Based on your financials, we'd consider lending you up to $750,000 — subject to finding a suitable property and everything staying the same."
Formal Approval says:
"We've assessed you AND the property at 12 Smith St. We'll lend you $680,000. Here are your loan documents."
Do You Always Need Both?
Not always — but pre-approval is strongly recommended. Here's when each applies:
- Pre-approval first: Best practice for any property search. Gives you a price range to search within, makes you a credible buyer to agents, and speeds up formal approval once you find a property.
- Skipping pre-approval: Some buyers go straight to formal approval after finding a property. This is riskier — you might sign a contract and then discover your finance is more limited than expected.
- Essential for auction buyers: Because auctions are unconditional, you need finance fully arranged before bidding. Most buyers get formal pre-approval plus a valuation of the specific auction property beforehand.
Want to understand your specific approval situation?
Tell us about your circumstances — income, deposit, target price — and we'll advise on the fastest path to pre-approval for your profile.
Or skip the form and
How Long Is Pre-Approval Valid?
Pre-approvals are typically valid for 3 to 6 months depending on the lender. After this period, the lender's assessment expires and you'd need to reapply. Circumstances can also change the validity earlier — for example, if interest rates rise significantly, your approved borrowing amount may reduce even within the validity period.
If your property search takes longer than expected, your broker can renew the pre-approval, usually by resubmitting your updated documents. The key things that can invalidate pre-approval before it expires:
- You change jobs or your employment becomes casual/contract
- You take on new debt (car loan, personal loan, new credit card)
- Your income decreases
- Interest rates rise significantly, reducing your serviceability
- Your credit score changes
What Happens Between Pre-Approval and Formal Approval?
Once you have pre-approval and find a property you want to purchase:
- Your conveyancer reviews the Contract of Sale and you negotiate the price/conditions
- You exchange contracts (paying exchange deposit, typically 5–10%)
- You instruct your broker to submit the full application to the lender for formal approval
- The lender orders a valuation of the property
- Valuation is completed (desktop, kerbside, or full — 1–7 days)
- Lender reviews valuation and your updated documents
- Formal approval issued — lender sends loan documents
- You sign loan documents and return to lender
- Settlement proceeds as scheduled (typically 42 days from exchange)
What If the Valuation Comes Back Low?
A low valuation is one of the most stressful scenarios in the home buying process. If the lender's valuer assesses the property at less than your purchase price, the lender will only lend against the lower figure. This means:
- Your LVR increases — you may now need to pay LMI you hadn't budgeted for
- You may need to find additional cash to cover the shortfall
- In some cases, you may need to renegotiate the purchase price with the vendor
A broker's advantage here: we know which lenders use which valuation panels. If one lender's valuer comes in low, we can sometimes order a new valuation through a different lender whose panel valuer may assess the property higher. This isn't guaranteed, but it's a legitimate option that direct applicants don't have.
Can Pre-Approval Be Denied After Being Issued?
Yes — pre-approval can be withdrawn or changed before formal approval if circumstances change. Common reasons:
- Your income situation changes (job loss, salary reduction)
- The property doesn't meet the lender's criteria (unusual construction, unusual suburb, title issues)
- The valuation comes back below purchase price
- Something adverse appears in updated bank statements
This is why a broker is valuable throughout the process — not just at the start. If something comes up between pre-approval and formal approval, an experienced broker knows how to navigate it, which lender to pivot to, and how to protect your settlement date.
For buyers in Western and Southwest Sydney, Mortgagefy handles pre-approvals for Liverpool, Campbelltown, Parramatta, Bankstown and surrounding suburbs. Our initial consultation is free and we compare 30+ lenders to find your best fit.
Get Your Pre-Approval Sorted Today
We'll find the lender most likely to approve your profile and move fast. Free consultation, no obligation.
Ready to talk to a broker?
Get a straight answer about your borrowing power — no credit check, no obligation. Available Mon–Sat 9am–7pm.