Key lending terms when purchasing property

What do the following terms means?

• Borrowing capacity → estimated loan amount using initial information given

• Pre-approval → loan amount approved by lender (with listed conditions)

• Conditional approval → loan amount approved pending final documents / lender checks

• Formal approval → loan approved by lender for stated property / borrower

• Settlement → loan now set-up in the name of the borrower

Borrowing Capacity
An indictive figure of what a client might be able to borrow usually calculated using estimated savings/deposit, income, expenses, and liabilities.

This figure is a guide and has not been assessed by a lender, nor have documents usually been verified.

Pre-Approval (Conditional Approval / Approval in Principle)

The broker has provided the majority of the required information and the lender’s preliminary assessment says:

“Based on the information provided, borrower is approved $_________ subject to conditions.”

Typical conditions include:

• Signed contract of sale

• Updated valuation reviewed

• Latest payslips / updated financials

• Certificate of Currency (insurance)

• Rental statements (if investment)

Fully Assessed Pre-Approval (Credit Approved)
The broker has provided the majority of the required information and the lender’s preliminary assessment says:

“A credit assessor has reviewed and signed off on this. Borrower is approved $_________ subject to conditions.”

Formal Approval (Unconditional Approval)

Lender accepts all the information and documents, the loan is approved and it is time to organise settlement.