Arranging Finance vs Signing Contract.

[Superstitionist]

I used to learn all the principles from the investment bibles that you have to arrange your finance before jump into signing the contracts, at a bare mimumum to find out how much you can effort, and who may lend that to you.

At the same time, I also find out people are securing their deals first before heading to the bank for finance, and faces with different type of hurdles.

Are those people overestimate theirselves... Or they would like to have more challenges... Or that is the way to go once you pass the beginner's stage...

 

[steveadl]

Personally I wait until my equity has built up, then go shopping in my price bracket. Then once I've signed a contract, go to the bank and let the fun start may not be the best way, but worked for me so far. Although I'd do it the proper way if I was a first home buyer looking for a PPOR without any IP's yet.

 

[Dis]

Arranging your finance in advance of purchase is approval in principle. It basically allows you to know how much you can borrow. The bank has not actually approved the loan. Its worthwhile doing to know your limit. Its also worth doing becuase some banks / lenders will lend you more than others and this may be important to you.

You only get approval subject to valuation once you have signed the contract. This is usually the time when you can negotiate on special conditions above and beyond the standard packages the bank offers

You get final approval once valuation is done. This is when the bank will send you mortgage documents to sign

There is approval... and there is approval!

 

[wanelad]

Hi Dis that is correct there are approvals and approvals there are also pre approvals and pre approvals. Some lenders will do most of the checks for the pre approval as you say such as credit etc, thus depenendant only on the valuation and possibly the Mortgage Insurers.

Some lenders do minimal and do not even run the credit checks until the contract has been submitted. WHat I am saying here is some of the Pre approvals are not worth the paper they are written on, others are quite substantial apart from the remaining conditions

 

[Dis]

Interesting, Wayne.

Why do lenders even do such a (flimsy) preapproval? Simply to make the borrower feel that they are "contracted" with the lender?

 

[Peter_Tersteeg]

Lenders have flimsy approvals, because they can be issued quickly, makes the customer feel good, and there's a 95% chance the customer will then come back when they buy the property.

At that point, they've just about got the customer, so their terrible service can kick in.

 

[HandyAndy888]

Personally I wait until my equity has built up, then go shopping in my price bracket. Then once I've signed a contract, go to the bank and let the fun start may not be the best way, but worked for me so far. Although I'd do it the proper way if I was a first home buyer looking for a PPOR without any IP's yet.

Yeah, I do the same..risky but fun as well...

 

[wanelad]

Peter has pretty well answered the question, however not all do a flimsy pre approval, there are some lenders that will be more thorough however it will still be conditional to valuation

 

[wylie]

Last purchase we made I walked two houses down to our loan broker and asked him if we could afford to buy a house for $460K. He told me "no worries" so we signed cash unconditional that day (Saturday).

It all comes down to our risk profile and our trust in our broker.

That, and knowing that if the bank knocked us back (I have every faith in our broker - he is good and knows our position) and it all went pearshaped we could ask my parents (very nicely) to lend us the funds to settle and then work out the mess afterwards.

Knowing my parents had access to enough funds to settle was a big comfort. If that happened and the bank had knocked us back, we would have had to settle using those funds, and sort out the mess later while paying the interest my parents would have incurred until we sorted it out.

With an offer from a developer couple already refused and knowing they would probably make another offer on the Monday, we had to move that day or risk losing it.

So, no time for a pre-approval, just blind faith in our loan broker and a safety fallback position if it didn't work out.

Wylie

 

[Peter_Tersteeg]

Peter has pretty well answered the question, however not all do a flimsy pre approval, there are some lenders that will be more thorough however it will still be conditional to valuation

Quite true Wayne. I've found that even some of the worst ones will put a reasonable effort into verifying things if you ask nicely.

Unfortuantely at the end of the day, most pre-approvals still have enough clauses that they can change their mind (not that most would, they actually do want to give you money).

 

[BayView]

The first two properties we ever bought were on the same day, no clauses, no finance approved. I wanted to get the properties without any chance of missing out. I already knew my (estimated) borrowing limit, but even so...

Then the stress began to get the finance - in 30 days.

Wouldn't recommend it, but anything since then seems rather ho-hum actually.

 

[Lamingtons]

I did the same thing LAAussie. Saw something that i really loved. And bought it. The stress was incredible! However I understand that pre-approvals don't mean anything. They might still decide that they will not lend you the money. Apparently someone I knew had to take out a personal loan for the shortfall in the loan. It was not a commercial bank but more like an equity fund lender. They are known to be very conservative bu the worked for them and they agreed that they would lend up to 95%. Few days before settlement they decided not to lend him the full amount. How is that possible? If they had provided the approval document for a set amount. Strange.

 

[JIT]

I'm curious what the mortgage brokers who post here do when they buy property for themselves, either PPOR or IP's, and at auction or private sale...do you use 'subject to finance' or 'subject to bank valuation' clauses???

Thanks,

GSJ