Pre-Approval vs Formal Approval: What Each Means

Pre-approval and formal approval are different milestones in the mortgage journey. Confusing the two can lead to awkward situations (you make an offer thinking you’re approved, only to be declined during formal assessment).

Pre-approval is a preliminary assessment. The lender reviews your financial position (income, debts, credit score) without seeing the property details. You submit an application, the lender assesses your serviceability, and they issue a letter stating: “We’re willing to lend you up to $X amount.” The letter is valid for 90 days (or sometimes 6 months) and is conditional on the property passing valuation and your financial circumstances remaining unchanged.

Pre-approval is non-binding. It’s not a promise to lend; it’s an indication that the lender sees you as a viable borrower. A lender can decline you during formal assessment even though you were pre-approved because the property doesn’t meet the lender’s standards, your financial situation has changed, or the property’s valuation comes in lower than expected.

Formal approval (or unconditional approval) occurs after the lender has reviewed the specific property, obtained a valuation, and confirmed that everything aligns with their lending criteria. At formal approval, the lender is contractually committed to lend (subject only to settlement conditions). You can now make an unconditional offer on the property (no finance contingency required).

The gap between pre-approval and formal approval is often 2–4 weeks. During this time, the lender orders a valuation (3–7 days), reviews the valuation (2–3 days), assesses the property details against their lending policies (3–5 days), and issues formal approval.

Pre-approval is useful for buyer confidence and negotiating leverage. When you’re making an offer, the seller wants to know you’re serious and capable of funding the purchase. A pre-approval letter demonstrates this. However, a pre-approval is not a formal approval, and savvy sellers and their agents understand this distinction. The property still needs to pass valuation.

Valuation is the main gateway from pre-approval to formal approval. The lender sends a valuer to the property; they inspect it, assess its condition, compare it to recent sales of similar properties, and assign a market value. If the valuation is $700,000 but you’re buying for $750,000, the lender will only lend based on the $700,000 value. You’re forced to inject an extra $50,000 or renegotiate with the seller.

Conditional approvals are rare but exist. A lender might issue approval “conditional on receiving a satisfactory engineering report” (for older properties) or “conditional on receiving updated payslips from your employer.” These are approval-in-principle, pending the condition being satisfied.

The pre-approval letter is often valid for a limited period (90 days is standard). If you don’t find a property and make an offer within 90 days, the pre-approval expires and you need a new pre-approval (lender re-assesses your serviceability). Rates might also have changed, affecting the pre-approved amount.

Rate locks and pre-approval interact. Some lenders lock an interest rate at pre-approval (e.g., “6.2% locked for 90 days”). Others lock only at formal approval. Confirm your lender’s policy; a locked rate at pre-approval protects you from rate spikes while you’re property hunting.

Formal approval typically comes with conditions (final valuation, clear title, no material change in employment). These are administrative hurdles, not major barriers. If your formal approval says “conditional on final valuation confirming $700,000 value,” a $705,000 valuation satisfies the condition. A $680,000 valuation does not, and the lender can withdraw the approval.

Disclaimer: This article provides general information only and should not be taken as financial or legal advice. Pre-approval and formal approval processes vary by lender. Consult your mortgage broker for clarity on your lender’s specific timeline and conditions.