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How to get a home loan: from borrowing power to unconditional approval

Pre-approval, deposit size, lenders mortgage insurance, brokers versus banks, and the difference between an approval you can bid on and one you cannot.

11 min read · Written for Australian first home buyers

Getting a loan is mostly paperwork and patience. The part that catches first home buyers out is not the application, it is the gap between an approval that lets you look and an approval that lets you settle.

The sequence

1
Borrowing capacity
A broker or lender calculates what you could borrow from income, debts, dependants and living costs. This is an estimate, not an offer. It takes an afternoon.
2
Pre-approval
A lender assesses your documents and says it would likely lend up to an amount. Usually valid three to six months. This is what lets you bid or offer with confidence.
3
Property-specific application
Once your offer is accepted, the lender values the actual property and approves the loan against it. This is where valuations come in short and deals wobble.
4
Unconditional approval
The lender commits. Only now is your finance certain. Everything before this is conditional, whatever anyone calls it.

What you need to have ready

Photo identification for every applicant
Three to six months of payslips, or two years of tax returns if self-employed
Three to six months of bank statements showing genuine savings
Statements for every debt: card limits, car loans, personal loans, buy-now-pay-later
Evidence of the deposit and where it came from, including any gift letter
A realistic monthly spending summary, because the lender will check it against your statements

Credit card limits count against you at their limit, not the balance. Cancelling an unused card before you apply can lift your borrowing capacity meaningfully.

Lenders mortgage insurance, and how to avoid it

Lenders mortgage insurance protects the lender, not you, if you default and the property sells for less than the loan. It applies when you borrow more than eighty per cent of the property value, and it commonly costs one to five per cent of the loan.

80%

Loan-to-value ratio above which lenders mortgage insurance usually applies

Insurance payable under the First Home Guarantee, at a 5% deposit

The three usual ways around it are a twenty per cent deposit, the First Home Guarantee, or a guarantor using equity in their own property. Guarantor loans put the guarantor's home at risk, so treat that option as a family decision rather than a finance one.

Choosing a loan without getting lost

Feature	What it does	Worth paying for?
Offset account	Savings sit against the loan and reduce interest	Yes, if you hold a cash buffer
Redraw	Pull back extra repayments you have made	Usually free, but access rules vary
Fixed rate	Locks your rate for a term	Certainty, at the cost of flexibility and break fees
Split loan	Part fixed, part variable	A reasonable middle for first home buyers
Package with annual fee	Bundles offset, cards and discounts	Only if the rate discount exceeds the fee

Compare the comparison rate rather than the headline rate, since it folds in most fees. Then check whether the features you are paying for are ones you will use.

Finance and auctions do not mix easily

At auction in most of Australia there is no cooling-off period and the contract is unconditional on the fall of the hammer. There is no "subject to finance" clause to protect you. If your lender then declines, or values the property below your bid, you are still bound and your deposit is at risk.

That is not a reason to avoid auctions. It is a reason to have pre-approval, a valuation view you trust, and your contract reviewed before you raise your hand, not after.

Common questions

What is the difference between pre-approval and unconditional approval?

Pre-approval is the lender saying it would likely lend you an amount, subject to checks. Unconditional approval is the lender agreeing to lend against a specific property after valuing it. You can bid with pre-approval, but only unconditional approval is certain.

How long does pre-approval last?

Usually three to six months, and it can be renewed. Your circumstances have to stay broadly the same. A new car loan, a job change or a credit card limit increase can all undo it.

Broker or bank?

A broker compares many lenders and is paid a commission by the lender you choose, so ask how they are paid. A bank only offers its own products. For a first home buyer with a straightforward situation either works; for anything unusual a broker usually finds more options.

Can the bank refuse to lend after my offer is accepted?

Yes. The most common reason is that the lender's valuation comes in below the contract price, which leaves a shortfall you have to cover in cash. This is why a finance clause matters, and why buying at auction, where contracts are usually unconditional, carries more risk.

Where these figures come from

Grants, thresholds and duty rates change. Always check the current rules with the relevant state revenue office or Housing Australia before you rely on a number here.

Know the price before the bank does

The free Underquote Check compares an advertised guide against a likely range, so you are less likely to bid past what a lender will value.

Check a price guide - free See what $399 covers

Information, not legal or financial advice. TrueBuy is not a credit provider or broker. Confirm with your lender, broker and conveyancer before acting.