What is the difference between pre-approval and formal approval (home loan)?

Pre-approval typically takes 1-7 days, costs nothing, and gives you a borrowing-capacity letter that lasts 60-90 days. It's based on income docs + credit check + an indicative LVR, but specifically NOT on the property you'll buy. Most pre-approvals come with a clear caveat that 'subject to property valuation' is the binding constraint.

Formal approval happens once you have a contract on a specific property. The lender orders their own valuation (often a desktop val or short-form report under $1M), confirms title + zoning, runs a final credit + serviceability check, and either issues the formal loan offer or comes back with conditions.

Why valuations bite: lenders use the LOWER of contract price or their valuation to calculate LVR. If you contract at $1.2M and the bank vals at $1.1M, you're suddenly at 95% LVR on a $1M-deposit base, which may push you into LMI you didn't budget for.

Practical: get pre-approval before bidding, but don't treat it as money-in-the-bank. Use cooling-off period (or auction-precondition checks) to convert pre-approval to formal approval before exchanging unconditionally.