Finance - Bank says security is unacceptable

[ipinvestor]

We are buying a run-down property in Perth WA. It is a 4X2 on @700m2 block. Our offer is $255K. Property is structurally sound but needs new bathrooms, Toilet, New Kitchen and some repairs on walls and some part of ceiling, all doors need to be replaced and painting, tiling, roof restoration etc. We had a pre approval from Bankwest but after valuation, they came back saying that the security is unacceptable. The valuation report came back and it says the property is currently unlivable and needs heaps of work.
We told them that we were looking at spending about $50k to renovate and tidy this up. But they said it would take a lot more than that as apparently it's a knock down job. Valuation has come in at $235k.
Our mortgage broker gone back and forth a bit to see if they would base it only on land value or if you put in more deposit and they have still said "no as security is not acceptable"

Mortgage broker has spoken to quite a few other lenders and advised them of the situation and without them seeing the property they have all said they most likely wouldn't accept the property either as it sounds like it is quite bad.
Do we have any other option to buy that property? I was thinking to ask vendor to drop price to $235K and/or Ask for vendor finance (3) Put 20% deposit and purchase cost. (initially we asked for 95% loan) (4) Cross collateral security with any other property (We have 2 properties with ANZ and 5 with RAMS). This option is risky but we can take that risk if vendor drops the price.

In this circumstance vendor will not be able to sell to any other buyer because bank will not lend. If someone has enough equity to fund the property, bank will lend.
Please advise me on this issue. What would you do in this situation.

 

[Peter_Tersteeg]

Firstly a pre-approval with BankWest isn't worth the paper it's written on. Your broker should be aware of this.

A property without a functional kitchen & bathroom is not going to be acceptable security for any lender at 95%. You might get 90% with one or two lenders, but it will be difficult and expensive. As a comparison we had a deal rejected by CBA 6 months ago because the property didn't have laundry facilities. The CBA wasn't interested at any LVR.

You've possibly got a couple of options.

1. Look at some of the non-conforming lenders, probably at 80% LVR. It will likely have high setup costs and not ideal rates.

2. It may be possible to get it done with ANZ or another lender without having a valuation done, but the absolute most you'd be able to get is 90%, probably 80% under these circumstances. If a valuation isn't done, then the lender doesn't know much about the property. This does take advantage of loopholes in the system, but it does work. If you structure your finances correctly, the loans don't need to be cross-collateralised although sorting all this out can take time.

 

[ipinvestor]

Thanks PT. I do not want to go for X-collateral security but if ANZ insists, I will take that path.
Do you think, ANZ will lend without valuation? Thanks.

 

[Aaron_C]

ipinvestor. This security should never have been put to a lender's valuation panel because it will get rejected without batting an eyelid. Is this a category 1 (aka metro) location? You really should go with a lender that has a no valuation policy - you can get this done at 80-90% quite comfortably.

 

[Peter_Tersteeg]

Thanks PT. I do not want to go for X-collateral security but if ANZ insists, I will take that path.
Do you think, ANZ will lend without valuation? Thanks.

The ANZ will always insist, even when it clearly isn't required; that's what banks do.

If you've got equity in equity in other properties you can access that equity separately, then use it as a cash deposit for the new purchase. Banks would rather simply give you a 100% loan against the new property, then tie it to another existing property thus cross-collateralising the two.

If you're under a tight deadline, then cross-collateralising may be the fastest way forward, but that's about the only reason I can see for taking that path at the moment.

 

[Aaron_C]

Firstly a pre-approval with BankWest isn't worth the paper it's written on. Your broker should be aware of this.

Toilet paper...

 

[Savanna100]

what about suggesting some sort of lease-option and you do the reno then get it revaulued and use your option to buy. Rick Otton does a similar thing with his lease-options with "sweat equity" of the buyers doing up rundown houses thus ensuring better bank valuations before they go ahead and exercise their option.

 

[tobe]

what about suggesting some sort of lease-option and you do the reno then get it revaulued and use your option to buy. Rick Otton does a similar thing with his lease-options with "sweat equity" of the buyers doing up rundown houses thus ensuring better bank valuations before they go ahead and exercise their option.

Great in theory, but there are quite a few risks working on a property before settlement. Many legal people would recomend against it.

 

[Savanna100]

The legal documentation that Rick Otton uses would make that situation secure. After paying a deposit, you rent until you buy (for a previously agreed price) with some of your rent going towards the price.

There must be people on this forum who could tell you more about this. I did Rick's course about 5 years ago but did not proceed with the system at the time. It's clever and would seem to suit this situation as you get a foothold on the property, renovate it then go to the bank for the money to purchase it.

 

[Aaron_C]

That only works if the vendor agrees. If the vendor is a bank (which most run-down properties like this are), then that is not going to happen.

 

[tobe]

while the contract might be watertight, it doesnt allay all of the risks. The normal risks of mis estimating the reno costs, the risk of an insurable event happening prior to settlement. the risk of credit environment or personal environment changing prior to settlement etc etc.

 

[ipinvestor]

what about suggesting some sort of lease-option and you do the reno then get it revaulued and use your option to buy. Rick Otton does a similar thing with his lease-options with "sweat equity" of the buyers doing up rundown houses thus ensuring better bank valuations before they go ahead and exercise their option.

It is a State Housing Department property, I don't think they will accept that option.
Thanks.

 

[Rolf Latham]

It is a State Housing Department property, I don't think they will accept that option.
Thanks.

can be an undoing for no vals policy too ......................

ta
rolf

 

[HotRod]

ipinvestor. This security should never have been put to a lender's valuation panel because it will get rejected without batting an eyelid. Is this a category 1 (aka metro) location? You really should go with a lender that has a no valuation policy - you can get this done at 80-90% quite comfortably.

C'mon now!!!

All you people thinking Perth is non-metro just because it is outside your precious Melbourne and Sydney.

 

[Pa1nter]

I recently went through this with my brother when he went to buy a rundown house with no toilet,bathroom,kitchen.

All we did was get some quotes from a couple of licensed trades for the work.
Bank came through and added that amount to the loan for it to happen.

Brother didn't decide to continue so I don't know if the bank would only pay that extra to the trades?

 

[Mick C]

Bankwest pre-approval is worst than toilet paper, at least i can USE toilet paper...

The options i see.

1. Don't cross your property, especially if you have 5 with Rams and 2 with anz...risky your portfolio on a poorly structure loan all for a $255 purchase

2. Sounds like you have some equity in the property, release the equity as cash and used that as the 20% deposit

3. You can go to Adelaide bank and they will be able to do a 80% loan with no valuation ( depending on the location- needs to be a cat 1) Also ANZ has a no valuation policy.

Also NAB might be able to do it under their no valuation policy as well; however a few criteria needs to be met first; ask your broker.

Worst case, most of the major 4 banks will be happy to do most deals as "land" value only under their DUA. Only got one approved this Monday at 90% with Westpac.

 

[Rolf Latham]

Bankwest pre-approval is worst than toilet paper, at least i can USE toilet paper...

The options i see.

1. Don't cross your property, especially if you have 5 with Rams and 2 with anz...risky your portfolio on a poorly structure loan all for a $255 purchase

2. Sounds like you have some equity in the property, release the equity as cash and used that as the 20% deposit

3. You can go to Adelaide bank and they will be able to do a 80% loan with no valuation ( depending on the location- needs to be a cat 1) Also ANZ has a no valuation policy.

Also NAB might be able to do it under their no valuation policy as well; however a few criteria needs to be met first; ask your broker.

Worst case, most of the major 4 banks will be happy to do most deals as "land" value only under their DUA. Only got one approved this Monday at 90% with Westpac.

oooooooooor

Pick up the phone and Speak with MickC, who obviously has the street smarts to help you with your challenge ??

ta
rolf

 

[Savanna100]

It is a State Housing Department property, I don't think they will accept that option.
Thanks.

No, probably not. I thought it was just a private seller.

 

[ipinvestor]

Bankwest pre-approval is worst than toilet paper, at least i can USE toilet paper...

The options i see.

1. Don't cross your property, especially if you have 5 with Rams and 2 with anz...risky your portfolio on a poorly structure loan all for a $255 purchase (No, We are not doing it. Too risky)
2. Sounds like you have some equity in the property, release the equity as cash and used that as the 20% deposit (We do have some equity and savings as well. 20% deposit is OK)
3. You can go to Adelaide bank and they will be able to do a 80% loan with no valuation ( depending on the location- needs to be a cat 1) Also ANZ has a no valuation policy. (For mortgagee possession properties, all banks do valuation. I learned this morning)
Also NAB might be able to do it under their no valuation policy as well; however a few criteria needs to be met first; ask your broker. (New Broker has requested valuation, Last try with Homeside, Wish me good luck.)
Worst case, most of the major 4 banks will be happy to do most deals as "land" value only under their DUA. Only got one approved this Monday at 90% with Westpac.

That will be the last option..................Thanks everybody

 

[ipinvestor]

Loan Approved - Unconditional....................

Updating this post after 11 long days. Mortgage choice broker tried 3-4 banks and none of the bank was ready to lend even on land value. I realised that it was a wrong CHOICE.
I was disappointed and frustrated but one of the SSEF members (Somer Soft Extended Family) came to rescue.
Loan has been approved and we will have settlement in the 2nd week of April.
State housing property is in very bad condition but it is potential. I will upload before and after renovation photos. Thanks All.