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How do banks approve home loan applications?

Jodie Humphries avatar
Jodie Humphries
- 4 min read
How do banks approve home loan applications?

When you apply for a home loan, you submit your financial information, personal details and the details of the property you intend to buy. The bank analyses all that information and checks your credit rating to decide whether to approve or reject your loan application. It’s helpful for you to know what the bank looks for to help you put together an application that is likely to be approved. 

The bank approval process for a mortgage loan

You can start the loan application even before finalising the property purchase. You’ll need to provide documents to prove your income, such as proof of employment, payslips, bank statements and tax records. The bank will also ask you to submit the details of your savings, assets, loans or debts.

All these details enable the bank to estimate how much you can afford to borrow and comfortably repay the loan. The bank will then offer you a pre-approval, also called conditional approval, for this amount. This means that when you find a property to purchase, and it fits any conditions the lender has, you can apply for final approval to finalise your home loan.

With conditional approval or pre-approval, you can search for a property within the loan amount the lender has approved. Once you select a property, you can apply for final approval of your home loan. The bank will examine all aspects of your financial situation and credit score. The lender will also do a property valuation and review any documents related to the property.

If everything is in order, the lender will give you the final approval and send you the mortgage documents. Now you can organise with your solicitor the finalisation of the property purchase, go through the settlement process and take ownership of the property.

How do banks determine mortgage approval?

It’s helpful to know which aspects of your application may determine whether you’ll get a bank’s approval for a home loan. Understanding as much as you can about the home loan process before you start can help you take the right steps to put together a strong application.

Here are some things that will help you put together a strong application:

Build savings for the deposit

Before applying, make sure you’ve saved all or most of the money you need for the deposit. A lender will look upon your application positively if they can see that the funds for this deposit amount are available for you. The higher the deposit you pay, the lower the risk is to the lender. Hence, they’re more likely to approve your loan application and charge you a more competitive interest rate

Improve your credit score

The lender will run a credit check while evaluating your home loan application. Your credit score is taken as a measure of your financial responsibility. If you have a stellar financial history where you’ve kept your debt to a minimum or paid it off on time, you’ll have a good credit score. The better your credit score, the better your chances of getting your home loan application approved. If your credit score is low, you may want to improve it before applying for a mortgage. You can do this by paying off or paying down debt, cancelling credit cards or lowering credit limits. Remember not to apply for too many home loans with multiple lenders, as every credit check also affects your credit score.

Have a steady source of income

Any lender will want to see that you earn a steady income capable of repaying the money they lend you. Ensure you can provide payslips, bank statements and tax records to prove your income’s stability.

Reduce outstanding debts

A lender will consider all your current loans, including your credit cards, to judge whether you can manage these existing repayments and your home loan repayments. If you can, try to pay off all other loans or bring them to a minimum before applying for your home loan. 


This article is over two years old, last updated on March 17, 2021. While RateCity makes best efforts to update every important article regularly, the information in this piece may not be as relevant as it once was. Alternatively, please consider checking recent home loans articles.

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