Securing finance for auction purchase

I am contemplating buying at auction. Not focusing on any particular property at present but looking to pickup something below market like a morgagee bargain in the near future.

At present I'm like many in that I have been looking to purchase with a preapproval using either a LOC as a deposit or using the security on another property.

If I was to secure a LOC for the entire amount needed to allow me to go to auction would the bank need to do a valuation on the new purchase before auction and could they pull the LOC due to concerns with the purchase?

Do others buy this way and are there any implications ie. re pulling so much equity from the one property, higher loan interest rate, tax, moving forward with other purchases using this method, etc.?

How do others here like skater finance an auction purchase?
Be careful of mortgagee auctions. Everyone seems to think they're a bargain, and for that reason they rarely are.

If you've got a line of credit available for the full purchase price, you can effectively pay cash for the new property. There shouldn't be any need for the lender to take the new property as security, so they wouldn't require a valuation. You wouldn't really need a pre-approval either.

I am assuming you've got sufficient equity in an existing property to secure a line of credit against the existing property?

AIP for Auctions can be risky but depends on many things, some of which can be

1. Your financial profile and quality as a borrower
2. The loan to value ratio ( is the LMI involved)
3. Full or lo doc ( is there LMI involved)
4. How long away is settlement
5. Is the property you are buying suitable security for the lender and/or the LMI provider.
6. Valuation should generally not be an issue, but can be in some instances.
7. The actual approval itself. is it from one of those lenders that provides a 30 second pre some cases that approval may as well have come from a Weet bix packet. Many lenders dont do much detail work on AIPs or conditonals. Make sure u know which yours falls into.

Yes I do have the equity for a full LOC however I wondered whether they required a valuation moreso to work out my proposed cashflow prior to approving the loan. So really a finance Q I guess.

Previous preapprovals including the most recent have been given following valuation of property and financial statements so no, not one of those 5min preapprovals.

I have seen some genuine bargains at auction in the last year and have made good comparisons to be able to come to this conclusion.

I would obviously still be doing my DD and only bid if I knew the market I was buying into really well. My intention would be to buy something under market.
What does AIP stand for?

Approval In Principal - this is a pre-approval. From what you've described, your pre-approval sounds solid.

A lender granting a LOC would want to know what the funds will be used for, but this shouldn't be too hard to get around. A specific valuation on the proposed property shouldn't be required in most cases.
hi weg,

As Peter suggests, not everyone needs a LOC to purchase a house.;)

I would think though that the amount you wish to borrow is considerable?

If you need to state income to service the loan , then I think you are suggesting that you will need to tell the bank the purpose of the increased LOC and therefore a valuation may be neccessary?

I would not rule a val out, although I think it is unlikely. I would also not rule out the possibility of the bank wanting the property as security.

I can think of no reason to pull the LOC on a low val on new purchase if you are saying that you can use equity (LOC) in an existing property to purchase the new.

Regards JO
Thanks all :D.

In regards to the second half of my Q does anyone know if this would impede lending wise, the purchasing of IP's down the track? Is it be messier? I gather there are no tax implications?

Is there any reason why I should not go down this track when I have the equity to?
The limit of the LOC will have an effect on your borrowing capacity the same way any loan does. It is possible to borrow 60% of a property's value with almost no questions asked. Having an unencumbered property gives you plenty of scope to get access to a lot of equity fairly easily.

I can't see any tax problems as long as the LOC is used exclusively for investment purposes. You might be able to structure the ownership to an favorable tax position for you and your family. This might be achieved by assigning ownership to a lower income earner, or by using a trust. You'd want some specifically tailored tax advice on this so ask your accountant about it.