A couple in Brisbane had a first conversation about buying their next home. They gave their incomes, a rough figure for living costs and the balance of their car loan, and the numbers were run on the spot. The answer was that a loan of about $780,000 looked workable. They heard that as a yes, and started inspecting homes at that level.
Six weeks later, with a full application in front of a lender’s credit assessor, the figure the lender was prepared to support was closer to $735,000. Nothing had gone wrong, and nobody had changed their mind. Two different people had answered two different questions, at two different points in the process.
What an early yes is built on
At enquiry, the figures are stated rather than verified. Income is what the applicant understands their salary to be. Living expenses are an estimate, often a round number. Debts are the ones that come to mind. The broker runs those inputs through a serviceability calculator, usually one that mirrors a lender’s own, and reports what comes out.
That result is useful. It shows whether the plan is in range, which lenders are likely to suit, and what would need to change if it is not. What it cannot do is confirm that the inputs are right, because at that stage nobody has seen a payslip, a statement or a credit file.
A broker does not approve loans. A lender’s credit assessor does, and in most cases only after the documents have been read against the lender’s written policy.
What the assessor does differently
The assessor starts from evidence. Each figure in the application is traced back to a document, and where the document and the stated figure differ, the document is used.
In this couple’s file, four things moved between the first conversation and the assessment.
Income. One applicant’s stated salary included regular overtime. The payslips confirmed it, but the lender’s policy counted overtime at 80% of the verified amount, averaged over the year to date. The income used in the assessment was a few thousand dollars lower than the figure given at enquiry.
Living expenses. The estimate given at the start was $4,200 a month. Three months of transaction statements showed spending nearer $4,900 once childcare, insurance paid annually and subscriptions were included. Lenders use the higher of declared expenses and their benchmark, so the higher figure went in.
Liabilities. The credit file showed a store card with a $6,000 limit that had not been used in two years and had been forgotten. A lender assesses a card on its limit rather than its balance, so an unused card still carries a monthly commitment in the calculation.
A buy now, pay later account. Small, regular, and visible on the statements. On its own it changed little, but it was a commitment that had not been declared and had to be added.
None of these is unusual. Each one moved the result a little, and together they accounted for most of the $45,000 difference.
The stages between a conversation and an approval
It helps to see the sequence as a series of answers that become firmer as more is verified.
An enquiry estimate is a calculation on stated figures. Nothing has been checked.
A pre-approval is a lender’s indication that it would lend a certain amount, subject to conditions. Some pre-approvals are fully assessed by a person who has read the documents. Others are generated by a system on the figures as entered, with the documents reviewed later. The two look the same on paper and carry quite different weight.
A conditional approval is issued once a property has been found and the application is assessed with it. The conditions commonly include a satisfactory valuation and any outstanding documents.
A formal approval, sometimes called unconditional approval, is the lender’s commitment to lend. It follows the valuation and the clearing of every condition. This is the point at which the answer is the lender’s, in writing.
The gap between the first and last of these is where most surprises sit. The earlier the documents are read, the smaller that gap tends to be.
What changed the outcome here
The couple’s position was sound throughout. The lower figure did not end the purchase; it changed the shape of it. The unused store card was closed and the buy now, pay later account was paid out and closed, both before the application was lodged. With those commitments removed and the file presented to a lender whose overtime policy suited the applicant’s role, the supported figure settled at about $760,000. They bought at a price that fitted that number, with room left over.
Had the documents been gathered before the first figure was quoted, the starting number would have been lower and the search would have begun at the right level. The six weeks spent looking at homes above their range were the real cost of treating an estimate as a decision.
What mattered
Three things carried the result. The first was who was answering: a broker modelling stated figures at the start, and a credit assessor testing verified ones at the end. The second was verification itself, which tends to move income down and expenses and liabilities up, rarely the other way. The third was timing. The adjustments that helped, such as closing unused credit, were only possible because they were found before lodgement rather than during it.
An early yes is a reasonable place to start, provided it is understood as a range based on what has been said so far. An approval is a decision based on what has been shown.
Understanding which of those two answers you are holding, before a contract is signed, puts you in a better position.