Home Loan Pre-Approval: 8 Mistakes That Get You Rejected

Getting pre-approved for a home loan feels like a green light to buy - but pre-approval isn't a guarantee. Many buyers have their loans declined after pre-approval, often because of avoidable mistakes. Here's what can go wrong and how to protect yourself.

What Pre-Approval Actually Means

Pre-approval (also called conditional approval or approval in principle) means a lender has reviewed your financial situation and is willing to lend you a certain amount - subject to conditions.

Pre-approval typically lasts 60-90 days. If you haven't found a property by then, you'll need to reapply.

Mistake #1: Changing Jobs

Lenders want to see stable income. Changing jobs during the loan process can derail your approval - even if the new job pays more.

Why It's a Problem

• You may be on probation (typically 3-6 months)
• Income may not be guaranteed
• Lender needs to verify new employment
• May need to restart the application process

Mistake #2: Making Large Purchases

That new car or furniture package can wait. Large purchases between pre-approval and settlement can reduce your borrowing capacity or trigger a decline.

What Counts as "Large"

• Cars or motorbikes (even with a loan)
• Furniture packages on interest-free terms
• Expensive holidays on credit
• Any new credit accounts or loans

Lenders will request updated bank statements. If they see new debts or depleted savings, your approval is at risk.

Mistake #3: Taking on New Debt

This includes credit you might not think of as "debt":

• New credit cards - Even if unused, the limit counts against you
• Buy Now Pay Later - Afterpay, Zip, Klarna all show on your credit file
• Car finance - Significantly reduces borrowing capacity
• Personal loans - For any purpose
• Store finance - Interest-free deals are still debt

Mistake #4: Spending Your Deposit

Your deposit needs to be available at settlement. Lenders verify your savings before final approval. If your deposit has shrunk, you may not have enough to complete the purchase.

Costs to Budget For

Remember these costs come out of your savings in addition to the deposit:

• Stamp duty (unless exempt)
• Legal/conveyancing fees ($1,500-3,000)
• Building and pest inspections ($400-800)
• Loan establishment fees
• Moving costs
• Initial repairs or cleaning

Mistake #5: Letting Pre-Approval Expire

Pre-approval typically lasts 60-90 days. If it expires:

• You need to reapply with updated documents
• Your financial situation will be reassessed
• Interest rates may have changed
• Lending policies may have tightened

Mistake #6: Providing Inaccurate Information

Everything you tell the lender will be verified. Common issues include:

• Understating expenses - Lenders check bank statements
• Overstating income - Payslips must match
• Forgetting debts - Credit checks reveal everything
• Wrong employment details - Lenders verify with employers

Discrepancies between your application and the evidence can delay or decline your loan.

Mistake #7: Buying the Wrong Property

Pre-approval is for YOU, not for any specific property. Lenders must also approve the property as suitable security. Some properties banks won't lend on:

• High-density apartments - Especially in oversupplied areas
• Very small apartments - Under 40-50sqm internal
• Student accommodation
• Serviced apartments
• Properties with short leases (under 40 years remaining)
• Unusual constructions - Kit homes, shipping containers
• Properties in mining towns - Considered high risk
• Properties with defects - Major structural issues

Mistake #8: Exchanging Contracts Without Finance Approval

Some buyers get excited and exchange contracts before their loan is unconditionally approved. This is extremely risky.

What Can Go Wrong

• Property valuation comes in lower than purchase price
• Lender finds issues with your application
• Property doesn't meet lender requirements
• Your circumstances change unexpectedly

The Consequences

If your loan is declined after exchanging contracts without a finance clause:

• You may lose your deposit (typically 10%)
• The vendor can sue for damages
• You're liable for the difference if they sell for less

Pre-Approval Checklist: What to Do

Before Applying

• Check your credit score (use CreditSavvy or similar)
• Clear small debts if possible
• Cancel unused credit cards
• Reduce credit card limits
• Have 3-6 months of clean bank statements

After Pre-Approval

• Keep your job - don't change employers
• Don't apply for any new credit
• Don't make large purchases
• Keep saving - don't spend your deposit
• Maintain the same spending patterns
• Keep payslips and bank statements updated

When You Find a Property

• Check with your broker before signing anything
• Include a finance clause in your contract
• Allow enough time for formal approval (14-21 days minimum)
• Respond quickly to any lender requests

How Long Does Full Approval Take?

After you find a property and submit for formal approval:

Allow at least 14-21 days for your finance clause. Some lenders are faster, but delays happen - especially during busy periods.