A conditional approval letter is not a loan
means your lender has reviewed your finances and agreed to lend you money in principle, but the loan is not yet confirmed. means every condition has been met and the lender is committed to funding your loan. The gap between those two states is where buyers lose deposits, and most do not realise it exists until it is too late.
- 45% of first home buyers say they find it difficult to research which loans are best for them .
- 70% of first home buyers in 2025 did not wait to save a 20% deposit, pushing more loans into the LMI-approval bracket .
The Legal Practitioners' Liability Committee in Victoria has documented cases where buyers assumed their conditional approval letter meant finance was sorted, let the finance clause in their contract lapse, and then lost their deposit when the lender declined the loan after valuation . Conditional approval is a checkpoint, not a finish line.
What conditional approval actually commits the lender to
Conditional approval is a written indication from your lender that they are prepared to lend you a specific amount, based on the financial information you have provided so far. The word "conditional" means the lender still needs to verify certain things before committing.
At this stage, the lender has typically reviewed your income, expenses, debts, credit history, and employment status. They have decided that, on paper, you can service the loan. But they have not yet confirmed the specific property is acceptable security, and they have not done their final verification checks. A conditional approval letter will list the specific conditions you need to satisfy. Until every one of those conditions is ticked off, you do not have a loan.
The conditions attached to your approval vary by lender and by your individual situation, but most fall into these categories:
Condition | What it means |
|---|---|
Satisfactory property valuation | The lender orders an independent valuation of the property. The valuation must come in at or above the purchase price. |
Signed contract of sale | The lender needs to see the fully executed contract for the property. |
Updated payslips or income evidence | If time has passed since your initial application, the lender may ask for the most recent 2 to 3 payslips. |
Verification of employment | The lender may contact your employer directly to confirm you are still employed in the same role. |
Bank statements | Recent statements (usually 3 to 6 months) showing your savings pattern and spending habits. |
Title search | Confirmation that the property has a clear title with no encumbrances that affect the lender's security. |
Insurance | Evidence that you will have adequate building insurance in place by settlement. |
approval | If your is above 80%, the lender's mortgage insurer must also approve the loan. This adds 2 to 5 business days to the timeline . |
Unconditional approval is the only stage that lets you go unconditional on a contract
is the point where the lender has verified everything and committed to funding your loan. Every condition has been met. The valuation is satisfactory. Your documents are confirmed. The loan is approved for the specific property at the specific amount. Once you have unconditional approval, the lender will issue your loan contract documents. You sign and return them. The lender then books settlement. This is the stage where you can confidently tell your conveyancer that finance is confirmed and the in your contract can be satisfied.
Conditional approval | Unconditional approval | |
|---|---|---|
Lender commitment | In principle only | Binding commitment to fund |
Property identified | Not necessarily | Yes, specific property assessed |
Valuation completed | No | Yes, satisfactory valuation received |
All documents verified | Partially | Fully verified |
Finance clause satisfied | No | Yes |
Safe to go unconditional on contract | No | Yes |
The timeline between the two is tighter than your finance clause suggests
Once you find a property and your lender has the signed contract of sale, the move from conditional to unconditional approval typically takes 3 to 7 business days for a straightforward application . But several factors can stretch this:
- Valuation delays. If the lender's valuation panel is busy or the property is in a regional area, the valuation alone can take 5 to 10 business days .
- LMI approval. If you are borrowing more than 80% of the property's value, the lender's mortgage insurer also reviews your application. This adds 2 to 5 business days .
- Incomplete documents. Every time the lender asks for something you have not provided, the clock resets on their processing queue. One missing payslip can add a week.
- Lender processing times. These fluctuate with demand. After a rate cut or during spring property season, turnaround times stretch .
What can go wrong between conditional and unconditional
Conditional approval is not a guarantee. Your lender can decline the loan after conditional approval for several reasons .
{Valuation shortfall}. The lender's valuer assesses the property at less than the purchase price. The lender will only lend against the lower figure. If the valuation comes in at $680,000 on a $720,000 purchase, the lender calculates your LVR on $680,000, meaning you need to find the $40,000 gap from your own funds, or the loan does not proceed. Valuation shortfalls are especially common for off-the-plan purchases, where the market can shift between the contract date and settlement. Research from WBP Property Group found that 45% of new apartments in Sydney and Melbourne were valued lower on completion than their original purchase price .
Changed financial circumstances. If you change jobs, reduce your hours, take on new debt (including a car loan or credit card), or miss a repayment on an existing loan between conditional and unconditional approval, the lender may reassess and decline .
Lender policy changes. Lenders can tighten their lending criteria at any time. If your lender introduces new restrictions on your property type, your LVR bracket, or your employment category after you received conditional approval, your application may no longer fit .
Property issues. Some properties are harder to lend against. Studio apartments under 40 square metres, properties in flood zones, homes with significant structural defects identified in the valuation report, or properties on very small or irregular lots can all trigger a decline at the unconditional stage .
Your finance clause must match the lender's reality, not the agent's
Your contract's gives you a set number of days to get unconditional approval. If you do not get it by the deadline, you can use the clause to terminate the contract and recover your deposit. The standard finance clause period is 14 to 21 days . But here is the problem: if you sign the contract on a Friday and your lender does not start processing until Monday, you have already lost 2 days. Add a valuation that takes a week, a lender processing queue of 3 to 5 days, and any request for additional documents, and 14 days can disappear fast.
If your finance clause expires before you have unconditional approval, one of two things happens depending on your state and your contract wording:
- 1The contract becomes unconditional automatically, meaning you are now committed to the purchase whether or not you have finance.
- 2You must give written notice before the deadline, and if you miss this you may lose the right to terminate.
Either outcome is dangerous if you do not have finance confirmed. Your conveyancer should be tracking every condition deadline from the day you sign.
The answer to "do you have finance?" depends on which stage you have reached
When an agent asks if you have finance, the honest answer depends on which stage you have reached:
- Conditional approval: "I have an indication from my lender, but the loan is not yet confirmed. I need a finance condition in the contract."
- Unconditional approval: "My lender has formally approved the loan for this property. I can go unconditional."
Do not let anyone, including an agent or a well-meaning family member, convince you that conditional approval means you are "basically approved." A loan that is approved subject to conditions is a loan that is not yet approved . Until you have the unconditional approval letter, you need the in your contract.