Auction with no Pre-Approval

Hey All,

Just wondering if I can get some advice on this issue. Looking to bid at an auction this Saturday, my Broker currently in the process of renewing my pre-approval with CBA but it's taking forever due to them putting pre-approvals on the back burner. I'm just wondering whether I should run the risk of bidding an auction without pre-approval and if other people have done this what was their experience prior to settlement? People I've spoken to lately have really warned me against the idea and said they would never go to auction without pre-approval because you may risk losing your deposit. I was always under the impression that pre-approval is in itself still a risk because the bank is not obliged to give you that loan you were pre-approved for.

I really love the house it's exactly what I am looking for. I would prefer private treaty but a lot of auctions happening at the moment. The house auction price guide is $610k in Adelaide - I've been told that if it's a given price guide it will be max +10% which is max amount they're allowed to under quote by. I would expect it to go for $640-650K which is my limit I'm setting (I won't let myself get emotionally attached since there's always another house).

Bit of background - my old pre-approval just run out in June and it was fully assessed in December last year based on a $70k salary with about $102k for a deposit. I was pre-approved for $424k loan, + a loan guarantor split for $40k, meaning after fees etc. I could afford $540k property. I ended up not buying after December because I was hoping that market would calm down given a few months but ironically it got worst.

I had a promotion in March, which brought my salary up to $82k, and I managed to save and bring my deposit up to $132k. Based on my current situation, broker said my maximum borrowing power has gone up to $575k, meaning I could look for ~ $660k property (with a guarantor split approx. the same as before to bring LVR below 80). I'm setting my borrowing limit at $550k. I have pretty high faith in my broker, he's been honest, shown me how the numbers are crunched and my last pre-approval he was on point with what the lender ended up pre-approving me for which was the max figure he presented.

Some other notes:
- Only debt I currently have is HECS of about $20k
- Deposit saved has been my own genuine savings
- No credit cards or anything, I try to minimise spending as much as I can (I'm very stingy lol)
- I have been working at the same company for 3.5 years full time as a civil engineer
- It's only me borrowing, no dependents
- Have some super built up and also small share portfolio of about $7K
- Not heaps keen if the settlement in the contract is less than 30 days - I think I would be stressing there wasn't enough time in case approval was declined by CBA

Thanks in advance!

 

Going to Auction without a preapproval is definity risky and it's your risk to take.

By saying that CBA originally pre approved you, you changed roles for a higher salary which shouldn't really affect the outcome.

But either way there's some risk involved.

 

You will likely get the preapproval by Saturday. Just keep reminding your broker. CBA are generally quick with preapprovals.

For a PAYG borrower, there is probably not as much risk. Even with a preapproval, you still have some risk while bidding at an auction because you still don’t have final finance approval.

It really comes down to your own peace of mind and how much stress you are willing to take from winning the auction to having the finance approved. There are even people who only apply for a loan after winning an auction and there are others who worry all the way to the day of the settlement.

 

Hi Rolf,

Yeah fortunately my parent who is guarantor is in a good financial position and would be happy to cover extra bit of money for me as a "gift" to help me cover any difference. Ideally I'd love to avoid paying back said gift that but it is an option I mentioned to my broker. With auctions, are banks valuation usually lower than what the sold market price is? People have told me that valuations come back pretty close to market price, but then I see some auctions go through the roof and I'm not sure how the bank deals with those scenarios.

Cheers,

 

Unless something has changed in your circumstances or bank policy, you don't have anything to worry about. Talk to the person who set up your pre-approval and ask them to gauge if there's anything for you to be concerned about.

You don't need a pre-approval to bid at an auction, you need confidence that you'll get the finance. In many cases a pre-approval isn't necessary to have this confidence. It's only when the margins are tight or there's some grey areas between your circumstances and bank policy that a pre-approval necessary.

In many cases, a pre-approval is more of a sales exercise for the bank because it stops you from shopping around further, ensuring they'll get your business.

 

This is true,
At least with CBA via Broker channel you will have a credit assessed pre-approval - most other lender pre-approvals are not credit assessed and may end up being misleading.
There is a risk whenever buying at an Auction, I would personally try to get as much confidence as you can from your broker regarding maximum buy price you can actually afford before bidding.

 

CBA calc has changed significantly recently. If you already own properties, especially many properties, it's certainly not a given that you'd be approved with CBA for the same amount as before.

 

True. The new CBA calculator is a big step backwards. Hence the suggestion to have the original banker/broker reassess.

The good news is that there's plenty of alternative lenders that have profiles better than the CBA ever did. An older pre-approval with the CBA may not work, but there's quite a few good alternatives that will work comfortably.

 

I agree completely. We used to use CBA a lot, but only for niche stuff now.

 

Thanks Jess, and Peter. Out of interest when did they change their calculators? I'm a first home buyer but main reason I'm going with CBA is just because Guarantor is with CBA as well so it's just easier.

 

The CBA calculator changed about 6 weeks ago, along with a few policy changes, most of which were targeted towards investors.

In some circumstances it's actually going to be slightly better, but for larger portfolios (4 or more), it's a significant change for the worse.

The CBA also made a policy change in the last fortnight, increasing their minimum assessment rate. This will reduce the amount they'll lend by a little.

Again, discuss this with whoever set up the pre-approval. If the margins were previously very tight, then an alternative will be needed. If there's plenty of margin, then it's not going to be an issue.

 

Okay thanks for that appreciate it. I spoke to my broker about two days ago, he was pretty adamant that there should be no issue to borrow up to $550k since it passes servicing when factoring HECs, and is less that a DTI of 7. Is CBA typically quite fast with actual contract in hand approvals compared to pre-approvals? My Broker said 3-4 business days before CBA picks it up

 

Their current pickup time has improved and they should assess within 3-4 days. The back end (loan offer documents) is still far too slow, but they do have avenues to prioretise imminent settlements.