Pre-approval explained: what a conditional approval is and is not

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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Almost every buyer in Queensland is told to get pre-approved before they start looking. Agents ask whether finance is in place, auctioneers assume it, and a buyer holding a letter from a lender feels ready to make an offer. The letter is useful. It is also widely misunderstood, and the misunderstanding has a cost, because the moment a pre-approval is relied on is the moment a contract is signed.

A pre-approval is a lender's statement that, on the information it has seen so far, it is prepared in principle to lend up to a stated amount. It is not a loan offer and it does not bind the lender to anything. The lender has not yet seen the property, and its view of the borrower can change. Between the letter and the money sit several conditions, and any of them can fail.

This guide explains what a lender has and has not done when it issues a pre-approval, the two very different levels of checking that go by the same name, how long the letter lasts, what it leaves on a credit report, and how it fits the finance clause of a Queensland contract and the rules of a Queensland auction. It describes the general position and is not advice for a particular purchase.

One document, several names

Lenders use different words for the same thing. Commonwealth Bank calls it conditional pre-approval. Macquarie Bank's guidance for brokers speaks of a pre-approval or approval in principle. Other lenders say conditional approval or indicative approval. They all describe the same stage: an assessment of the borrower, made before a property has been chosen.

Commonwealth Bank's description is a fair summary of what the buyer receives. Conditional pre-approval, it says, gives an estimate of how much the customer could borrow based on the information provided, and confirms eligibility to apply for a home loan up to a certain limit. Qudos Bank, a customer-owned lender, puts it this way in its own explainer: the lender is agreeing to the loan in principle, and final approval depends on certain criteria being met.

The stage that follows has names too: formal approval, full approval or unconditional approval. That is the point at which the lender has checked everything, including the property, and commits to lend. Only then does it issue loan documents for signing.

Two levels of checking behind the same word

The most important thing to know about a pre-approval is how thoroughly it was assessed, and the letter does not always say.

Macquarie Bank's instructions to brokers set out two routes. A broker lodging a pre-approval can choose a data assessed application, in which the bank's system evaluates the information entered and runs a credit check, or a fully assessed application, in which the credit team carries out a complete review within its normal processing times.

The difference is large. A data assessed approval means a computer has accepted the figures as typed. Nobody has read the payslips, compared the declared living expenses with bank statements, or checked that the employer and the income are what the application says. It can be produced in minutes, and it will be overturned at the formal stage if the documents do not support the figures.

A fully assessed approval means a credit assessor has verified the documents. The remaining conditions then relate mostly to the property and to nothing having changed. It takes longer, days and sometimes more in a busy period, and it is worth far more.

Other lenders draw the line in their own ways, and some issue only one kind. The question for any buyer is the same: has a person verified my documents, or has a system accepted my numbers? A buyer intending to sign a contract without a finance condition, or to bid at auction, needs the first answer.

What the lender looks at

For a pre-approval that is properly assessed, the lender examines the borrower much as it will at the formal stage. Qudos Bank lists the documents it typically asks for:

• identification;
• proof of income, such as payslips, or tax returns for the self-employed;
• records of savings, in the form of bank statements;
• details of existing debts;
• paperwork for a guarantor, if one is involved.

From these the lender works out whether the borrower can afford the repayments. Unloan, a digital lender owned by Commonwealth Bank, describes the review as covering income, employment stability, expenses, existing debts, credit history and savings.

Two regulatory settings shape the answer. A bank must test whether the borrower could still meet repayments at a rate 3 percentage points above the actual rate, a buffer the Australian Prudential Regulation Authority confirmed in May 2026 that it was keeping. And since 1 February 2026 the same regulator has limited each bank to writing no more than 20 per cent of its new owner-occupier lending, and 20 per cent of its new investor lending, at a debt of six times income or more, with exemptions for loans to build or buy new dwellings and for bridging finance.

Because the test starts from the current rate, the amount a lender will pre-approve moves when rates move. The cash rate rose three times in 2026, and a household assessed in January would have been approved for more than the same household assessed in September.

The conditions that remain open

A pre-approval letter lists conditions. Unloan's explainer names the common ones: verified income documents, a valuation confirming the property is acceptable security, no material change in the borrower's finances since the approval, and completion of the full credit assessment.

The property. This is the condition no pre-approval can remove, because the property does not exist in the lender's file until a contract is signed. Commonwealth Bank says that after a contract is supplied it completes the necessary and final checks, giving property valuation, credit checks and building documents as examples. The lender wants to know two things: what the property is worth, and whether it is a kind of property it lends against. Qudos Bank's list of reasons for withdrawal begins with a property not deemed adequate security.

No change in circumstances. Qudos Bank names a significant change in the applicant's financial situation, such as loss of a job or new debt, as a reason a conditional approval can be withdrawn. Unloan adds changes in employment or income between the two stages.

Accurate information. Errors or fraud discovered later, or incomplete documents, are on both lenders' lists.

A final credit check. The lender looks at the credit report again before committing. Anything new since the pre-approval is visible.

Where the deposit is under 20 per cent and lenders mortgage insurance is needed, the insurer's agreement can be a further condition, since the insurer makes its own assessment of the borrower and the property.

Ninety days, and what happens at the end

Pre-approvals expire. Commonwealth Bank says its conditional pre-approval is valid for 90 days. Qudos Bank gives the same period and says a customer who has not found a property can ask for an extension, for which updated financial documents may be required. Unloan describes 90 days as typical, with some lenders allowing three to six months.

Macquarie Bank's rules for brokers show how firm the limit can be. Its 90 days run from the date the application was first submitted, editing and resubmitting does not extend them, and a pre-approval cannot be extended beyond the window: if no property has been found, the application must be lodged afresh, which restarts the period.

The reason for the limit is that the information goes stale. Payslips age, savings change, and above all the lender's own rates and policies move. A renewed pre-approval is a new assessment at the rates and rules of the day, and in a year of rising rates the renewed figure can be lower than the first. A buyer whose 90 days are running out should not assume the same amount will be offered again.

What it leaves on a credit report

A pre-approval that involves a credit check leaves a record. Moneysmart, the consumer site of the Australian Securities and Investments Commission, explains that a credit report shows the applications a person has made for credit. Each lender that later looks at the report can see them.

One enquiry is unremarkable. Unloan describes the effect of a single enquiry on a credit score as minor and temporary. The risk lies in several. Qudos Bank warns that multiple applications across lenders can count against a borrower, because each one appears as a loan enquiry, and Unloan notes that a cluster of applications in a short period may lower a score and can look like a sign of financial difficulty.

The practical consequence is to compare lenders first and apply once. A broker can check a borrower's position against several lenders' policies without lodging an application with each, and lenders' online calculators give an estimate without a credit check. Moneysmart notes that anyone can obtain their own credit report free every three months, and reading it before applying costs nothing and leaves no mark of that kind.

How it fits a Queensland contract

In a private treaty sale in Queensland, the standard contract published by the Real Estate Institute of Queensland and the Queensland Law Society lets the buyer make the purchase subject to finance. The finance condition is clause 4.1 of the current edition of the contract for houses and residential land. The buyer names the lender, the amount and a finance date on the front pages. If the buyer has not obtained approval on satisfactory terms by that date, having taken all reasonable steps to obtain it, the buyer can end the contract and have the deposit returned. If the buyer gives no notice by the finance date, the seller gains a right to terminate.

Pre-approval and the finance clause do different jobs, and they work best together.

The pre-approval shortens the time needed. A buyer who is fully assessed has only the property-related checks left, so a finance period of two to three weeks is usually workable where an unassessed buyer might need longer. Sellers and their agents prefer a shorter finance period, and a buyer who can offer one has a stronger offer at the same price.

The finance clause covers what the pre-approval cannot. If the valuation comes in short or the lender declines the property, a buyer with a finance condition can withdraw within the terms of the clause. A buyer who signed without one cannot.

That is the trap. A buyer told they are pre-approved may be tempted to make an offer that is not subject to finance, because unconditional offers are more attractive to a seller. Doing so on the strength of a pre-approval alone transfers the whole risk of the remaining conditions to the buyer. Queensland's statutory cooling-off period of five business days for residential contracts, which carries a termination penalty of 0.25 per cent of the price, is too short to rely on for a formal approval, and it does not apply to a sale at auction.

The building and pest condition, clause 4.2 of the same contract, runs alongside. A lender's valuer is not a building inspector, and the valuation is prepared for the lender, not for the buyer.

Auctions are a different case

A property bought at auction in Queensland is bought unconditionally. There is no finance condition, no building and pest condition and no cooling-off period. The contract is signed and the deposit paid on the day, and the buyer must settle on the due date whether or not a lender provides the money.

Unloan's explainer strongly recommends having conditional approval before bidding, for that reason, and adds the limit that matters: the valuation still takes place after the purchase. A bidder with a pre-approval knows what the lender may lend against an acceptable property. The bidder does not know what the lender will say about this property at this price.

Careful auction buyers narrow the gap before the day. They obtain a fully assessed pre-approval, not a system one. They tell the lender or broker the address in advance and ask whether the property type and location are acceptable, and whether a valuation can be ordered beforehand; some lenders will do this. And they set a bidding limit that leaves spare cash to cover a valuation below the hammer price.

When the valuation comes in short

The most common way a pre-approval fails to deliver is a valuation lower than the price. An illustration shows the mechanics. The figures are an example, not market data.

A buyer has a pre-approval for a loan of up to $640,000 and has saved a deposit that allows a purchase at $800,000 with a loan of 80 per cent, avoiding lenders mortgage insurance. The buyer signs at $800,000. The lender's valuer assesses the property at $770,000.

The lender lends against its own valuation, so the loan falls by $24,000 and the buyer must find that sum in addition to the planned $160,000. The alternatives are to borrow above 80 per cent of the valuation and pay lenders mortgage insurance, if the lender agrees and the repayment test still passes; to ask for a second valuation or try another lender; or, where the contract is subject to finance, to consider whether approval on satisfactory terms has been obtained at all.

Short valuations are more likely when prices are falling, because valuers rely on recent comparable sales. Cotality's index showed Brisbane home values down 2.7 per cent over the three months to August 2026.

Other ways it comes undone

The period between pre-approval and settlement can run to three or four months, and lenders check again at the end. The changes that most often cause trouble are within the buyer's control.

• A new job. A move to a new employer, a probation period or a shift from salary to contracting changes how income is treated.
• New debt. A car loan, a new credit card or a buy now pay later account taken out while house-hunting is counted at the final check. Credit cards are assessed on their limit, not their balance.
• Spending the deposit. The lender verified savings at a point in time. Furniture bought before settlement comes out of the funds needed to complete.
• A rate rise. If rates rise between the pre-approval and the formal assessment, the repayment test is run from a higher starting point.
• The property itself. Very small apartments, properties in some postcodes, homes with unusual titles or serious defects may fall outside a lender's policy whatever the valuation.

The safest course is to tell the lender or broker before making any financial change, however small it seems, until the loan has settled.

From pre-approval to an unconditional loan

Once a contract is signed, the remaining path is short if the groundwork was done. Commonwealth Bank says that after it receives the signed contract, formal approval takes one to five business days.

The fourth step is the one that buyers leave late. The finance date in the contract is a deadline, and the notice must reach the seller's side by then. If the lender needs more time, the buyer's conveyancer or solicitor has to ask the seller for an extension before the date passes; a seller is not obliged to agree.

A pre-approval is best understood as a head start. It tells a buyer what range to search in, proves to an agent that the buyer is serious, and removes most of the lender's work from the weeks after a contract is signed. It does not approve a property, and it does not survive a change in the buyer's finances. Treated as that, and not as a promise, it does its job.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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