How does pre-approval actually work in Australia?

What a pre-approval is

When a lender pre-approves you, it has looked at your income, your debts and your credit position and formed a view that it would likely lend up to a certain amount. That view is recorded, and it comes with conditions.

What it has not done is assess the property. Almost every condition on a pre-approval relates to something that can only be checked once there is a specific address: the valuation, the title, the contract, sometimes the building itself.

What a pre-approval is not

It is not an offer of finance. Only a credit provider can make an offer of finance, and only after the remaining information has been verified and assessed against its lending criteria. Anyone telling you otherwise is overstating it.

It is also not interchangeable between lenders. A pre-approval from one lender says nothing about what another would do, because they assess income and expenses differently.

Not all pre-approvals are the same

This is the part that catches people out. Some pre-approvals are assessed by a credit officer who has actually read your documents. Others are generated by a system against numbers you typed in yourself.

Both can be described as a pre-approval. Only one of them means much when you are standing at an auction. Before you rely on one, it is worth asking directly whether your documents have been assessed and what conditions remain.

How long does it last

Commonly around three months, though it varies by lender. It can usually be extended, but an extension often means the lender revisits your position, so it is not automatic.

The practical implication is timing. A pre-approval obtained too early can expire mid-campaign. Obtained too late, it is not there when you need it.

Why the conditions matter more than the number

The number tells you what you can look at. The conditions tell you what could still go wrong. A pre-approval subject to a satisfactory valuation is normal. One subject to a lender being satisfied about the source of your deposit, or about income it has not yet verified, carries real risk you should understand before you bid.

Ask for the conditions in writing. Read them. If any of them depend on something you have not provided yet, that is the thing to deal with now rather than during a cooling-off period you may not have.

If your income is not a salary

If you are self-employed, or your income arrives through a trust or a company, the gap between a system-generated pre-approval and a properly assessed one is at its widest. Automated servicing calculators handle structured income badly, and the number they produce can be substantially wrong in either direction.

For a file like that, a pre-approval is only worth having if a person has read the financials. See what income lenders actually count.