Home loans 101: What is unconditional approval?

Have an unconditional approval? Let’s explore what that means and what you can do leading up to settlement.

Getting your application approved is an exciting step in your home loan journey.

This comes in the form of an unconditional approval. This means that the lender has approved the application of your home loan, usually with no further requirements.

While getting the green light for your loan is worth celebrating, it’s important to know that it is not set in stone.

Let’s explore what an unconditional approval is, what to look out for and what steps you can take so the keys can finally fall into your hand.

What is unconditional approval?

An unconditional approval is the lender’s final decision to approve you for the loan.

It means they have taken all your details into account and are happy to lend you a set amount of money to buy a specific property.

This can also be referred to as a ‘formal approval’ or ‘full approval’. To avoid confusion, it’s best to know that these mean the same thing.

An unconditional approval differs from a ‘conditional approval’ (also known as a ‘pre-approval), which means that the lender has approved your loan if you meet certain additional requirements.

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What does an unconditional approval look like?

An unconditional approval generally comes in the form of an offer letter, which would come with detailed terms and conditions.

The offer letter would cover the main aspects of your home loan. These include:

• The loan amount

• Your annual interest rate

• Your repayments on a monthly, fortnightly and weekly basis.

The size of the terms and conditions can vary between lenders, often ranging from a 5-page document to a 100-page booklet.

When you have your unconditional approval, look out for ‘subject to further bank requirements’ in the conditions.

This tells us something important about unconditional approvals: lenders can still deny the loan if certain conditions aren’t met.

This can occur when:

• Your financial situation drastically changes and you’re no longer able to meet your home loan obligations.

• The lender finds there has been fraud or error in the application.

• Although uncommon, it is possible for the offer to be rescinded if the lender’s LMI insurer does not approve the application.

How long do I have to formally approve my home loan?

When receiving your unconditional approval, it’s important to know that this is not final. Basically, the offer is not finalised until you have formally signed and accepted the offer.

Lenders usually give you a timeframe of three months to accept the unconditional approval. Sometimes this varies between lenders, which is why it could be smart to confirm timelines with yours.

These timeframes are in place so your lender can confirm to proceed with your home loan.

What are the next steps after an unconditional approval?

If you have received an unconditional approval, you’re one step away from settlement.

To ensure a smooth transition before you get the keys, it’s important to do your due diligence ahead of signing your contract.

Before you rush to accept the offer, make sure you completely understand the conditions of your home loan.

We’ll outline what to look out for below, along with other key steps you need to consider before the loan is settled.

Before applying for unconditional approval

Unconditional approvals aren’t generally offered until all requirements from the lender have been met. If these conditions exist, they’re usually outlined earlier, via a conditional approval.

It’s common to jump straight to celebrating when you get your unconditional approval (it’s exciting after all!) However, doing the below can make sure you’re covering all of your bases.

You might also like: Explained: What is home loan pre-approval?

Understanding your unconditional approval

We’re only human, so it’s natural to want to avoid reading your terms and conditions. As this could be the biggest financial commitment you’ll make, spending time reviewing your unconditional approval can really pay off.

Read your unconditional approval carefully

Before signing anything, take some time to read the terms and conditions and check for mistakes. You can speak to a mortgage broker to clarify anything you don’t understand – and it’s free!

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Seek legal advice if needed

This is usually optional and at your own discretion, but seeking independent legal advice from a solicitor could provide more clarity for both you and your lender.

In some cases, your lender may request a certificate of legal advice from a solicitor, which can be the case for arrangements that are more complex.

These can include using guarantor home loans, SMSF loans or trust loans.

You might also like: Your guide to guarantor home loans

After signing your unconditional approval

If you’re happy with your unconditional approval, you can go ahead and sign it. Just remember, this needs to be done in the given timeframe from your lender.

There are then a couple of key steps to take before settlement, which we’ll cover below.

Organise insurance

Once your home loan is approved, it could be smart to organise insurance ahead of settlement.

Life can be unpredictable and when things go wrong, having insurance will ensure that there’s a plan in place with your mortgage.

There are simple solutions available for the unexpected, such as illness or becoming unable to work. These can help protect you and your family against the financial impact of those kinds of events.

Financial protection just for homeowners

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Pre-settlement inspection

This final inspection can be a great opportunity to check that the property is in the same condition since before your unconditional approval.

If time is given, vendors can rectify any damage or changes to the property before your settlement has been finalised.

Below are some questions you could ask when inspecting the property for the final time:

• Are there any issues or repairs required to the property that I’d need to be aware of?

• Can we get a professional cleaner in prior to settlement?

• Are there any issues with crime or break-ins in the area?

• What keys are there for the property and what are they used for? Can you provide this written/provide a photo?

It’s best to do your final inspection around a week before settlement. Communicate any concerns you have to the vendor and they can work with you to resolve them prior to you moving in.

When can I move into my property?

You have now reached a major milestone: settlement. It’s time to breathe, celebrate and look forward to what’s to come next.

During settlement, your lender will finalise everything and release the funds to the relevant vendor or real estate agent. On your end, your repayments will generally kick in within 30 days from this stage.

This leads you to getting the keys to your new property. It’s now time to pop open the champagne, as you’re officially the proud owner of your new home.

Regardless of your home loan arrangement, your broker will make sure to check in with you regularly throughout the life of your loan.

If your financial situation changes at any stage, your broker can work with you to make sure you’re on a competitive interest rate and have the best home loan product for your needs.

Have you received an unconditional approval or are you curious about how the process works? Hopefully, we’ve given you the insight to guide you on your property journey.

An FND Broker is always on standby to help, simply book your free appointment and get the clarity you need to meet your home loan goals.