Do you know off-the-plan loans need two approvals?

Buying off-the-plan means securing finance twice.

You get pre-approved when you sign the contract, but that approval expires long before the building finishes. When settlement approaches, the lender reassesses your income, your debt, and the property's value. If any of those three have shifted in a direction the lender doesn't like, your loan can fall through even though you were approved at the start.

In Parramatta, where tower developments along Church Street and the river precinct can take two to three years to complete, this gap between signing and settling creates real risk. Your circumstances might change. Lending policy might tighten. The valuation might come in lower than the contract price. You need to understand what holds steady and what doesn't, so you can plan around it.

Why lenders reassess at settlement

Your initial pre-approval is based on your income, expenses, and the property as it exists on paper. The development might be a hole in the ground or halfway up. The lender is taking a view on what the property will be worth when it's finished, and what your financial position will look like when you need to settle.

Between contract and completion, lenders review your home loan application again. They check your employment, your credit file, and any new debt you've taken on. They order a full valuation once the building is complete or near completion. If the valuation falls short of the contract price, the lender will only lend against the lower figure. If your income has dropped or your expenses have increased, your borrowing capacity shrinks. If lending policy has tightened since your pre-approval, you might not meet the new criteria even though nothing in your own situation has changed.

Consider a nurse working at Westmead Hospital who went from full-time to part-time hours after having a child. She signed a contract for a two-bedroom apartment in one of the new developments near Eat Street when her income was $95,000. By settlement, her income had dropped to $55,000. The lender's serviceability test no longer supported the loan amount, and the original approval was withdrawn. She had to find a co-borrower to proceed.

What happens when the valuation falls short

The contract price is what you agreed to pay the developer. The lender's valuation is what the bank thinks the property is worth at settlement. Those two numbers don't always match.

If the valuation comes in below the contract price, the lender calculates your loan to value ratio using the lower figure. You signed a contract for $750,000 with a 10% deposit, expecting to borrow $675,000. The valuation comes back at $700,000. The lender will only lend 90% of $700,000, which is $630,000. You now need to find an extra $45,000 to settle, on top of your original deposit.

This happens more often than most buyers expect, particularly in precincts where supply has increased faster than demand. Parramatta has seen a wave of apartment completions near the transport interchange and along George Street. When multiple buildings in the same precinct settle around the same time, comparable sales can lag behind contract prices signed two years earlier. Valuers use completed sales, not contracts, to form their opinion. If there aren't enough completed sales at the price point you've contracted at, the valuation is likely to fall short.

How to structure your deposit and hold funds in reserve

You'll typically pay a 10% deposit when you exchange contracts on an off-the-plan purchase. That deposit doesn't go to the lender. It goes to the developer, held in trust until settlement.

The lender still wants to see that you have genuine savings. For a property purchased under the Australian Government 5% Deposit Scheme, you need at least 5% of the purchase price saved, and the total property value must sit within the cap for your area. Parramatta falls within the NSW capital city and regional centre cap of $1,500,000. For purchases outside that scheme, most lenders expect at least 10% genuine savings if you're borrowing above 90% of the property value, or 20% if you want to avoid Lenders Mortgage Insurance entirely.

Genuine savings need to be held in your account for at least three months before you apply. Gifted deposits are generally accepted, but the lender will want a signed letter from the person providing the gift confirming it doesn't need to be repaid. Beyond your deposit, keep a separate buffer for settlement costs and potential valuation shortfalls. Stamp duty, legal fees, and lender costs can add another $30,000 to $40,000 depending on the contract price. If the valuation comes in 5% to 10% below contract, you'll need to cover that gap as well.

A clearer path is to secure pre-approval early, then avoid taking on new debt while you wait for the building to finish. Don't finance a car. Don't increase your credit card limit. Don't change jobs unless you have to. Lenders treat any new commitment as a reason to reassess your borrowing capacity, and even small changes can shrink the amount you're approved for.

Fixed rate, variable rate, or split when settlement is years away

You can't lock in a fixed interest rate when you sign an off-the-plan contract. Fixed rates are only available once settlement is imminent, typically within 90 days. That means the rate you were quoted at pre-approval is indicative, not binding.

If variable rates climb while you're waiting for the building to finish, your repayments will be higher than you planned for. If they fall, you'll benefit. The lender's serviceability test uses a buffer of around 3% above the actual rate, so even if rates rise, you should still meet the serviceability threshold as long as your income and expenses haven't shifted.

Once you're within three months of settlement, you can choose between variable, fixed, or a split loan structure. A variable rate home loan gives you flexibility to make extra repayments without penalty and typically comes with an offset account. A fixed rate locks in your repayment amount for a set term, usually one to five years, but limits your ability to pay down the loan faster. A split loan divides your borrowing between fixed and variable, giving you some certainty on repayments while keeping access to offset and redraw on the variable portion.

For medical professionals with variable income from overtime or locum work, a variable rate with a linked offset account usually makes more sense. You can park your savings in the offset and reduce the interest you're charged without losing access to the funds. If you're on a stable salary and want predictable repayments, fixing part of the loan can give you that.

Income changes, job changes, and what lenders will accept at final approval

Lenders reassess your employment and income just before settlement. If you've stayed in the same role with the same employer, this is usually a formality. If you've changed jobs, the lender will want to see a new employment contract and recent payslips.

For medical professionals, lenders understand that locum work and shift penalties are part of the income structure. Most will accept your base salary plus overtime or allowances if you can show consistency over three to six months. If you've moved from a staff position to a contract or locum role, some lenders treat that as self-employment and ask for ABN registration, tax returns, and accountant letters. That can delay your final approval or reduce your borrowing capacity if the lender applies a different income treatment.

The safest approach is to stay in your current role until after settlement. If that's not possible, move to a similar role with a similar or higher income, and let your broker know immediately so they can check whether your lender will accept the change without requiring a full resubmission.

What to do if your lender withdraws approval before settlement

If your lender pulls your approval in the weeks before settlement, you have options, but not much time.

Your first step is to find out why the approval was withdrawn. If it's a valuation shortfall, you can challenge the valuation by providing evidence of comparable sales the valuer may have missed. Your broker can help you pull recent sales data from the same building or nearby developments. If the shortfall is small, some lenders will accept a desktop revaluation without sending someone back to the property.

If the issue is serviceability, your broker can approach a different lender with a slightly different policy. Some lenders assess overtime and rental income more generously than others. Some have higher debt-to-income thresholds. If you're a medical professional, a handful of lenders offer specific home loan packages with rate discounts and higher borrowing capacity for doctors, nurses, and allied health workers. Switching lenders at the last minute is not ideal, but it's better than losing your deposit.

If the valuation shortfall is large and you can't cover the gap, you may need to negotiate with the developer to reduce the contract price or delay settlement while you secure additional funds. Developers are often willing to negotiate rather than put the property back on the market, particularly if the building has already settled and they're holding unsold stock.

Using the scheme, or going without it

The Australian Government 5% Deposit Scheme allows eligible first home buyers to purchase with a 5% deposit without paying Lenders Mortgage Insurance. In Parramatta, where the property price cap is $1,500,000, the scheme covers most one and two-bedroom apartments in the current off-the-plan market.

You apply through a participating lender, not directly through Housing Australia. Not all lenders participate, and those that do often have limited allocation. If you're approved under the scheme at pre-approval stage, you still need to meet the scheme criteria at settlement. That means the property value must remain within the cap, you must still be a first home buyer, and you must be an Australian citizen or permanent resident.

If the valuation comes in above the cap at settlement, you're no longer eligible for the scheme. You'll either need to increase your deposit to 20% to avoid LMI, or pay LMI on the shortfall. For a property valued at $750,000, LMI on a 90% loan can add $20,000 to $30,000 to your upfront costs. That's a significant gap to cover if you weren't expecting it.

If you're not using the scheme, most lenders will still approve off-the-plan purchases with a 10% to 20% deposit. You'll pay LMI if your deposit is below 20%, but you'll have more lender options and fewer restrictions on property type and price.

Speaking with a broker who works with off-the-plan buyers regularly will give you a clearer picture of which lenders are currently participating in the scheme, and whether you're better off using it or structuring your loan outside it. Call one of our team or book an appointment at a time that works for you.

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