Formal approval (or unconditional approval) is granted once you have met all of the lender’s conditions, and they are happy that you qualify for a home loan with them.

Typically, a potential borrower will seek pre-approval (conditional approval), which means the lender gives them an indication that they are likely to get a home loan, based on a number of conditions.

These conditions are normally:

• There has been no change to your personal circumstances (income, change of jobs or careers, having a child)
• Your property achieves a satisfactory bank valuation
• Lender’s Mortgage Insurance approval, if required
• The location of the property and the type of dwelling are within the lender’s parameters

The conditions will vary depending on the lender, however, once they have been met, you are effectively given the green light for your home loan.

Once you’ve received the letter offering you formal approval for your loan, there are only a few steps remaining.

1. Review the paperwork, sign it and return it to the lender.
2. You might be required to take out building insurance ahead of settlement. This is in place to protect the lender.
3. Conduct a final inspection to ensure everything is working and in line with the contract of sale.
4. Settlement – where your settlement agent or conveyancer will meet with the vendor’s representatives to exchange documents, and the balance of the purchase price will be paid to the seller.

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In some circumstances, unconditional approval might require you to take out building insurance for a fully detached house.

Once you’ve been granted conditional approval, there are a number of practical considerations that you need to think about. You’ve generally got 3 to 4 weeks until settlement, to take care of things, such as giving notice to move out of your rental property if you’re a first home buyer. You might also need to change your children's schools.

From a banking perspective, you are likely to have new bank accounts, such as an offset account, and it is usually worth having things like wages transferred into this type of account.