Buying a home can be a stressful process at the best of times. The last thing you need is for something to get in the way of your mortgage after it’s been approved.
But, while typically uncommon, it is possible for banks and lenders to revoke your mortgage before you settle on a new home.
There are a few factors that might affect the chances of this happening, including the stage you are at in the home buying process and the accuracy of your loan application.
For example, if you have been granted conditional approval but your mortgage lender finds flaws in your application when it comes to your formal assessment, they may revoke the approval altogether before you get to the final stages.
What’s the difference between conditional and unconditional approval?
Home loan approvals are generally granted in two stages – conditional approval followed by unconditional approval. The difference between the two are as follows:
Essentially, conditional approval (also known as pre-approval) is when the bank has assessed your application plus any relevant documentation and gives you the go-ahead to start looking for properties within a certain price range.
This approval stage is conditional in that it is subject to the suitability of the property you want to buy, as well as a formal assessment of your mortgage application.
It is, however, an important step because once you have conditional approval you can start seriously looking for a property. And if you find one that you want to buy, you can make an offer or bid at an auction with a predetermined borrowing limit in mind.
Once you’ve found a property, the lender will appoint a valuer to carry out a valuation and begin a formal assessment of your mortgage application.
If successful, you will then be granted unconditional (or formal) approval of your home loan, and the lender will begin the settlement process.
When might a bank revoke conditional approval?
There are a number of instances in which your lender could potentially make the decision to revoke your pre-approval, including the following:
- You lose your job or main source of income
- The property you want to buy fails to meet the lender’s requirements
- You have been dishonest on your application
- Your spending or savings habits are inconsistent or reflect poorly on you
- You don’t find a property before the pre-approval expires (typically within three to six months)
Can a bank revoke unconditional approval?
While unconditional approval is by definition approval that is not subject to any conditions, it doesn’t eliminate the possibility of something getting in the way.
The key thing to understand is that mortgage lenders are obligated to comply with the responsible lending conduct obligations. If your circumstances change at any stage after your home loan has been unconditionally approved – but before settlement – your lender must reassess your suitability for the loan.
If they believe that you will no longer be able to service the loan as a result of your change in circumstances, they may consider revoking your unconditional approval.
It’s important to be completely transparent with your lender throughout the entire process as that will allow them to work with you to achieve the best possible outcome.
You might like to consider consulting a mortgage broker, as they can be a valuable resource at each stage of your home buying journey with their wealth of professional knowledge and experience.