Hi,
I’m investigating how to pre-arrange finance before making offers on properties. My understanding is that all loan approvals are subject to bank valuation which is undertaken AFTER the purchase. Thus I can’t get approval BEFORE I purchase.
I have heard of people making unconditional offers on properties (offers that are not conditional on finance). Yet the only way I can see this working is (1) I’ve got the money in my pocket, or (2) I get a bank approval before making the offer, or (3) I take a punt and assume I will get finance approval.
Point (3) sounds a little risky to me. Actually it sounds very risky.
All thoughts appreciated. Thanks.
It is very risky.
Speak to a lender or a broker.
Cheers,
Simon Macks
Interest Free Home Loan Agent
[email protected]
0425 228 985Commercial Refinance to 95% LVR
Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi joek,
As i work in the mortgage broking industry i can advise you of the following:Whether you seek a pre approval (finance before you purchase) or full approval (after youve found the property) most banks will require a valuation to be carried out on the property to ensure it is suitable for them to take a mortgage over. This may entail such things as property value, location, property zoning etc.
From time to time banks may not require a valuation depending on the level of borrowings against that property ie how much equity you are providing yourself from savings or equity in another property. But lets just assume that the bank will do a valuation.
There isnt really such a thing as unconditional approval until valuations have been carried out and the Bank (& Mortgage Insurer if less than 20% equity being provided) is satisfied with the results.
People do make unconditional offers on properties usually when they are certain of being in a safe position to do so ie having at least 10% or 15% equity which may allow for any valuation discrepancy and researching the market in that area to get an idea as to what prices similar properties have sold for. But they do this at their own risk.
You might want to visit some open for insection properties and see what they sell for to get a good feel for the market.The Banks can give an indicative approval subject to a suitable valuation but thats as far as they can go in most cases.
Unconditional contracts of sale are usuallly done because the agent wants to get the sale finalised and doesnt want to wait a week for finance to be sorted. This is fair enough but you are the one taking the risk not them. If you arent comfortable doing so then dont do it. There are plenty of properties that ive assisted buyers with that have had finance clauses on them and if the agent wants the sale he’ll wait. Unless its an auction propety and its too close to auction day.
Regards
RodThank-you Rod and Simon for your replies.
They support what I suspected – that unconditional offers are made at the risk of the buyer. I think that such offers are made in order to make the deal more compelling to agents and possibly owners, and probably to negotiate a better price.
For myself, I would feel very uncomforatble making such offers, unless the risk could be mitigated in some way.
Thanks again for your responses.
Joe.
There are many ‘silly’ clients out there who take the punt on option 3!!
It is possible to get a valutation done when going for the pre approval, but if you don’t go ahead you would be charged the valuation fee – usually. So most people just go for the pre approval, then sign subject to finance within 14 days (or so). This gives you time for the bank to order the val and get it back (up to a week sometimes) and then process it and give you the full approval or rejection – and then you can safely backout.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hey all,
At the end of the day it ain’t over til the paperwork is signed at exchange anyway. – Even if it does not pan out… you lose the deposit only… no-one can force you to purchase.
1. I usually put terms that pertain to valuations meet lenders requirement rather than funding conditions… as if the vals do not measure up….. the money just don’t flow + it is somewhat illegal for agents to sell overvalued properties.-So you are saved from buying a lemon in most cases!
2. I mostly only put no more than $1,000 of deposit (including exchange) on property anyway so if it really goes to the wall…. I can contol the loss and walk away.
3. If the deal is that good… then it should be simple to flip the property anyway (however I believe that in some states of Aussie you will be hit with stamps and capital gain from your price to the new flipped price (even if you have the nominee clause in the contract).
4. Sometimes an option gives you more flexibility and gives you 42 days minimum to sort it all out before you lose the option fee…
I suppose it comes down to….. is it really a good deal? or is it a non money making transaction.
Exit strategy is paramount in any transaction!
Hope this helps,
Cheers
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