Can you make an offer without pre-approval?

Home loan pre-approval is where a lender agrees in principle to lend you the money required to buy a property.

You can apply for pre-approval before you’ve found a property you want to buy, or even before you’ve started shopping for real estate. Based on the income, expenses, genuine savings and other factors in your home loan application, the lender may agree to lend you up to a pre-set amount.

Armed with a pre-approval, you can shop for properties more confidently, as you’ll have a better idea of your budget. Your pre-approval should allow you to confidently make private offers to purchase property, or to bid on a property at an auction.

However, home loan pre-approval does not mean that your mortgage is a done deal. Most pre-approvals are valid for a limited time such as 90 days, as your financial situation may change during this time. Also, a lender may pre-approve a home loan on the condition that the property you purchase holds enough value to satisfy the Loan to Value Ratio (LVR) for the mortgage. This is why some home loan pre-approvals are called ‘conditional approval’ or ‘pre-approval subject to valuation’.

There’s nothing stopping you from making a private offer to buy a property, even if you don’t yet have a pre-approval in place. You might choose to do this if you’re waiting to hear back from a lender or mortgage broker about a home loan application, or maybe you’ve come across the perfect property earlier than you expected and want to get your foot in the door as soon as possible.

If you’re confident that you can get finance together to afford the purchase price, you can make a formal offer in writing to buy a property. However, a vendor or real estate agent isn’t obliged to accept your offer if they don’t believe you’re serious about the purchase, or if they have doubts that you can back up your offer with cash. This is where having a pre-approval in your back pocket can be handy, as it show’s you’re a serious buyer.

Also, even if a vendor accepts your offer, the sale isn’t final until the contracts are exchanged and signed. For this to happen, you’ll need to have finance available to back up your offer. If you can’t organise a mortgage in a speedy fashion, another buyer could come in and ‘gazump’ you, especially if they have their pre-approval ready to go.

Keep in mind that even with a pre-approval available, you can still miss out on buying a property. For example, if the lender’s valuation of the property comes up short, you may need to renegotiate parts of your pre-approval or offer a bigger deposit or a guarantor to secure the property. The more obstacles and delays between pre-approval and full unconditional approval, the more likely it is that another buyer could snap up the property from under you.

While it’s technically possible to bid at auction without home loan pre-approval in place, it can be a risky business.

If you’re the winning bidder at an auction, you’re obliged to pay a deposit on the property on the day of the sale, and there is no cooling-off period to let you back out of the deal. If you can’t organise your finance to back up your bid before the settlement date (which could be one to three months away), you could risk losing that deposit entirely, which could cost you hundreds of thousands of dollars in some cases, and see you miss out on your property purchase.

Whether you want to get pre-approval before going house-hunting, or you want to organise a home loan to back up an offer you’ve made, it’s important to make sure your application is well organised to make it easier for the lender to process, ensuring a smooth and efficient approval process. A mortgage broker may be able to help you prepare your application, spotting any little issues or errors that could hold up the approval process and making sure you have all the necessary paperwork.

It may also be worthwhile having a conveyancer or solicitor review the contract to purchase a property before you sign, as there could be surprises or issues hidden in the pages that could come back to bite you further down the line. These legal experts can help to ensure that the exchange of titles goes smoothly when settlement day arrives, so there are as few obstacles as possible between you and home ownership.