Buying at auction and finance

[aim_higher]

Just wondering if someone could explain finance approvals for auctions?

As I understand it auctions are cash sales. So, I assume that I need to get pre-approval prior to bidding. How do the banks pre-approve the lend without knowing what the sale price (and therefore my LVR and repayment ability etc) will be.

What happens if I'm an emotional and stressed first home buyer and get caught up in the thrill of the chase and pay way too much for the property - surely that's gotta impact on the lend or does the bank take the sale price as the valuation...?

The bank also told me that they'd give me a personal loan to cover any deposit required and then repay that with the lend for the IP before the first repayment - is that standard practice or is there a better way? I was looking for a bit more flexibility - just in case the property at auction does stack...

Any guidance would be appreciated!

 

[jazzlobber]

dude, get your lender/broker to give you pre-approval before going to auction.

They should be able to tell you how much they will lend you and so you will then know what you are playing with at auction.

If you are nervous, maybe consider getting a buyer agent to do it all for you.

Think also about the deposit you have and how that will affect your finances,

think in terms of

house price
stamp duty
other fees
deposit amount
LMI if applicable

only then will you know what amount you are playing with

 

[Jacque]

Rather than the personal loan situation (depends on the amount) consider a deposit bond- it may well work out cheaper for you.

Good luck at the auction

 

[Vodka]

If you are 100% serious about the house then factor in the cost of having a building and pest inspection, these need to be completed prior to the auction day.

 

[tobe]

I think you mean that pre-approval is 'subject to valuation' and if the val doesnt stack up, then you are stuck having to complete the purchase without finance. It is a bit tricky, however valuers very, very rarely value short in an auction. How can they justify a low val in such a public market place? They are assessing 'the market' value of the property, and an auction is the epitomy of the market in action. Perhaps some other mortgage brokers may have had an experience of an auction val coming in low, but I have never seen one. In fact in 4 years, I have only seen two private sales that have come in lower than purchase price. I have seen too many to count re-finances come in under the owners estimate.
Last year I had the lender do a valuation before auction, as it was for quite a small apartment and the mortgage insurers policy was 'on a case by case basis', so the valuer measured the property, and gave some rough comparable sales, and a price guide the Friday before the auction. Im not sure this is standard practice however, and wouldnt stand up if you did get 'carried away' at auction and set a new price for the suburb....

 

[twobobsworth]

How about making an offer before the auction of your best price?

 

[Bargain Hunter]

The bank also told me that they'd give me a personal loan to cover any deposit required and then repay that with the lend for the IP before the first repayment - is that standard practice or is there a better way? I was looking for a bit more flexibility - just in case the property at auction does stack...

Any guidance would be appreciated!

Hi,

We normally get the finance in place prior to purchase and have the cheque book ready on the day. Having said that we have been known to decide to buy and then have poor Rolf (sorry Mr Latham) running around to get us the money.

The funds for the deposit comes from either a re-draw facility on an existing loan or by drawing down equity on an exisitng property.

Regards

Andrew

 

[aim_higher]

I think you mean that pre-approval is 'subject to valuation' and if the val doesnt stack up, then you are stuck having to complete the purchase without finance.

That's exactly what I meant tobe. My question came about because of an auction I went to last weekend. A young couple were so excited after winning the auction, but the crowd around me were laughing at the price they paid. We bought our PPOR by negotiation and are looking to buy an IP and that auction experience raised some questions for me around finance...

twobobsworth, spot on, but I haven't found the right deal yet - I'm still getting a handle on things and seem to come across more unknowns every day. I spent some time today contacting brokers so hopefully I'll be a little clearer on our own situation soon..

Thanks for the reply's so far.