Pre-Approval

Plain-English definition. Pre-approval (or "conditional approval" or "approval in principle") is a lender's indication, after reviewing your finances and credit, of how much they're prepared to lend you — subject to property valuation and final underwriting.

How it works in Australia. There are two flavours: a system-only pre-approval (a soft credit decision based on stated income, no documents reviewed) and a fully-assessed pre-approval where a credit officer has actually verified income and expenses. Only fully-assessed pre-approvals carry meaningful weight at auction. They typically last 90 days and can usually be extended once. Pre-approval doesn't bind the lender — APRA serviceability rules mean that if your income changes or rates rise, the lender can still decline. Multiple pre-approvals harm your credit file: each lender lodges an enquiry.

Concrete example. A buyer gets fully-assessed pre-approval for $850,000 in February. They bid at auction in April for a $920,000 property. They cannot use the pre-approval — it's $70,000 short. Alternatively, they bid $830,000 at auction within their pre-approved limit, sign the contract unconditionally, then in week 2 the bank's valuation comes back at $790,000, blowing out the LVR. The deal might still complete but with LMI added.

Common confusion. Pre-approval is often treated as confirmed financing. It isn't — only "unconditional approval" (post-valuation, post-final-checks) is binding. Bidding to your full pre-approval limit at auction is risky because there's no buffer for a low valuation.