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Auction Finance

Discussion in 'Property Finance' started by newbie1234, 1st Sep, 2016.

  1. newbie1234

    newbie1234 Active Member

    Joined:
    9th Jul, 2016
    Posts:
    40
    Location:
    Sydney
    Hi All,

    Just wanting some guidance on my following situation.

    I have seen a unit that is going to auction in about 3 weeks time. It's a bankruptcy trustee auction and I may be interested in registering as a buyer.

    I would like to ensure that finance is 100% approved for this auction prior.

    First of all can you get unconditional approval for the auction prior to the day? If so how long does that usually take?

    Also I have quite a bit of equity in my home that I would like to use the deposit for. I have contacted my broker and we are going through ANZ as I have a fixed mortgage with them for my PPOR. He was telling me that if I wanted to borrow stamp duty I have to use my home as collateral. Is this the case?

    Ideally I would like to put 10% deposit in equity from my home and borrow the stamp duty + LMI and the remainder of purchase for the unit. Can you please advise if this is possible?

    I do have cash but I don't want to use it for this.

    Thanks in advance for your fantastic help!
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    Don't use your home as collateral - get enough equity in a separate loan to use as deposit and costs.

    Then get a pre-approval for the rest. This can be the same bank or another one.

    Get on it though, as these things take time and you don't want to find it's not ready in time.
     
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  3. newbie1234

    newbie1234 Active Member

    Joined:
    9th Jul, 2016
    Posts:
    40
    Location:
    Sydney
    Hi Jess,

    Thanks for your reply.

    How do you go about getting equity in a separate loan? Sorry totally new to how these things operate but yes I am not happy with using my home as collateral.

    Thanks!
     
  4. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,781
    Location:
    Perth WA
    Just get your broker to do a small new loan secured only by your PPOR.
    Then, in a separate application, do a pre-approval for the rest.

    Many brokers will just cross the securities but this is not the ideal way. if you're concerned he doesn't know how to do what you want, hit up someone one here, as they'll all know how to structure it for you.
     
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  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

    Joined:
    18th Jun, 2015
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    2,104
    Location:
    Melbourne, Nationwide
    You take an equity loan against your existing home to give you access to funds as cash which is then used for the deposit and purchase costs. You then get an additional loan for the remaining funds required for the purchase. This allows you to fund the full purchase price and purchase costs without cross collateralisation and in a tax effective manner.

    You can tell if loans are being cross collateralised when you're borrowing more than 80% of the property value but not paying any LMI, or simply a single loan will cover the full purchase price and possibly costs of the new property. If your existing broker is proposing that you cross collateralise by simply using your home as additional security, then it's time for a new broker. Take a look at this link:
    Cross collateralisation - 10 reasons to avoid
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    1,169
    Location:
    Gold Coast
    Neither of these is likely, because a core component is a val on the new IP.

    While the chances of a low val are in the region of 1 to 2 % from our 17 years experience, that doesnt help you if you are one of them 2 % and cant complete because you dont have the buffer

    ta

    rolf
     
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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Location:
    Sydney
    You cannot get an unconditional approval if you do not know the price you will be paying.
     
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  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Location:
    Canberra and Sydney
    Nope.

    Best you can get is pre-approval subject to contract of sale and satisfactory valuation.

    Use a lender that will actually provide an assessed pre-approval.

    Cheers

    Jamie
     
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  9. newbie1234

    newbie1234 Active Member

    Joined:
    9th Jul, 2016
    Posts:
    40
    Location:
    Sydney
    Thanks for everyone's advice - I saw the unit today and I've never seen bedrooms so small. Concerning that you would struggle to fit a queen bed in either of them and not much else. It was a pretty crappy unit. It's only saving grace was its location and it wasn't dark. Unless it goes for dirt cheap it's not worth it. Not sure if I want to bid on it but I'll definitely be there at the auction because id love to see what it goes for.
     
    Corey Batt likes this.