For an auction, I suppose you can only go off a pre-approval for your loan, as you can't get a final approval until after you have become the successful bidder and when would you get the final approval? I am guessing say a week after the auction. Would the valuation be also after the auction. So, there is some additional risk here with no cooling off. Right?
Hi Magic
Yep – you would be going off a pre-approval. Definitely make sure you get one done. A week or two after the auction for approval sounds about right. Auctions come with greater risks – but can also yield greater rewards.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
You can order a valuation first- but you will be paying for it..and can be a costly exercise if you dont end up buying the home and going to a few auction. I currently have 2 client who are doing this; paying valuation upfront prior to auction- as they are buying to their max “LVR” and the property type they are purchasing has a huge influx in value.
So i normally advise client. if your going to auction; to apply for an pre-approval for the MAX LVR of 90-95% but ONLY bid to a max of 85%, UNLESSS you have extra cash to support the gap if the valuation falls short ( Very common)
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Magic32 you are right there, you can only work off the pre-approval. Do you know which lender you are going with?
Auctions are quite dangerous, and there is no perfect way of protecting yourself as the purchaser. The bank can't effectively value a property prior to auction, as by definition the sale price is the market value. Unless of course two bidders went way out of control.
Please be aware that some lenders have pre-approvals that are effectively worthless. We've written a guide to help you work out how reliable is your pre-approval.
As mortgage brokers we all hate to hear of customers that were "pre-approved" on the spot in a bank and then they went off to an auction. In most cases the bank hasn't completed a full assessment and then when the customer wins an auction they then go through everything in detail. They do this to save money, processing a pre-approval and getting a credit manager to review the file is quite a lot of work. Many pre-approvals never convert to a full application so the banks just don't bother!
I don't believe in ordering a valuation prior to the auction as the bank valuer will generally value it slightly below the actual value. So if you then bid over that amount and apply for full approval you can only borrow using that initial valuation, not the purchase price. This is because the bank valuer is unlikely to do a new valuation a week later saying a property is worth more than in their prior valuation.
Buying at auction is best avoided for first home buyers or for people with very little in the way of a deposit. If something goes wrong there aren't many options. Unfortunately there are plenty of homes that are sold at auction and if you want them then you just have to take the risk.
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