Conditional approval, worried to go ahead.

Hi,

My wife and I are in the process of buying a new PPR by leveraging the equity of our existing PPR (which will then be converted into an IP). We will also be putting additional savings towards the 20% deposit of the new house. We are using a mortgage broker (not a bank employee, an independent broker) and CBA for the two loans (refinance is an investor loan, and the new property is an owner occupier loan). We got two approval letters from the bank, and according to the broker everything looks good and assures there is nothing to worry. However, I have my concerns because they don’t seem to be unconditional offers.

The finance approval deadline for the new property is next week, and both of us are feeling very nervous putting down a significant deposit.

Hoping someone here would be able to provide some insight. Apologies for the long post, here are the details of each offer letter:


The email title for the refinance offer reads “Pre Offer Letter - xxxxxx” the message body reads

Please find attached the Pre Offer Letter for the above home loan application.

Please do not reply to this email. For all enquires please contact your Broker directly, or call our home loan specialists.

Commonwealth Bank
Mortgage Services​

However the attached loan offer pdf doesn’t include the word “pre” anywhere. So I am little confused whether it’s a pre-approval or a standard loan approval. Was the email title a mistake ? Contents of the pdf are as follows:

After the CBA letterhead, address info and date it reads:​

Application Number XXXXXX

Dear our names

We have approved your loan application. ​

After some details there is a “What next?” section which reads​

We will finalise your loan application as soon as all of the following conditions have been met or checks have been completed:

• Statement verification of debts

You will shortly be receiving some important documents. Simply complete and sign and return them to accept our offer.​

Then the particulars of the loan such as the amount, interest rate , term etc.. are given in a table.

At the very end of the document it reads​

We may need to review your loan approval:

• if any of the financial information you give us changes or the interest rate shown above increases; or
• if the actual purchase price of the property or building costs on the property is different from the estimated purchase price or building costs you gave us.

​

We have provided 100% accurate details, and haven't hidden any debts, so we are not concerned about the "Statement verification of debts" which I believe is bank verifying our existing debts such as the existing mortgage , credit cards etc.. ?

The main concern I have is with the refinance amount. The application was submitted with a desktop valuation ordered from CBA which came back higher than what I believe is the current market value. IMO the desktop value reflects prices from early last year, but I’m pretty sure if we are to sell now, we won't get that for sure. The broker advises that since we are not accessing over 80% of the equity the bank don’t mandate a full valuation, and if they were to request one they should have done that by before issuing an offer letter. However, I am a little worried due to word "pre" in the email heading and the second bullet point listed above which reads:

“if the actual purchase price of the property or building costs on the property is different from the estimated purchase price or building costs you gave us.” ​

Although, because we are refinancing, not entirely sure if that clause even applies.

What do you think? I’m afraid of the bank ordering a full valuation and that coming in a lot lower.

Has any one had experiences with a refinance where a bank ordered a full valuation after a loan was approved (or in this case pre approved??) ?

The email title of the second offer reads “Offer Letter – xxxxxx” it doesn’t have the word “pre” anywhere in the email or the attached offer pdf.

The pdf attachment is identical to the first one except it doesn’t have anything in the “What next?” conditions part (where the previous one had: Statement verification of debts). Also, a full valuation was ordered for the new property and it came back at purchase price.

So what do you guys think ? Am I over-reacting ?

If the refinance doesn’t come through, or comes back with a significant shortfall then we are unable to proceed and risk losing the deposit.

Should we push for an unconditional letter? If the bank is not willing to provide one before the finance deadline then should we ask for a letter indicating that our finance application has failed instead and get out of the contact?

 

Please do not reply to this email. For all enquires please contact your Broker directly, or call our home loan specialists.

 

If you read my post, you should see that I have already done that. I'm not entirely satisfied with their response. Which is why I'm posting here.

 

Yes.

 

Hi Opt,

This is CBA's way of saying you're approved, but the documents are not yet produced. It's not quite formal approval, but it's very close and just a final sign off (usually of the valuation) to produce docs from here. You'll probably get formally approved very shortly, so just wait until the last day of the finance clause if required before going unconditional, to give yourself peace of mind.

 

Firstly let me say they I don't believe you have anything to worry about. At this stage, I don't recall every seeing an application not proceed. Everything is on the board and is fine, but some of the parts haven't been brought together 100% yet.

That said, this stage in the CBAs process perplexes me. It's kind of like them saying that it's approved, but they'd like one last chance to back out if they want. I don't even think that's what the intention is, but it doesn't create an ideal customer experience.

Don't worry @opt, buy Tuesday you'll likely have some documents to sign and from there you only need to wait until settlement.

 

Work on developing trust in your broker, or get a new one.

 

Thanks @Jess Peletier & @Peter_Tersteeg for your replies, they do put my mind at a little ease.

Will have another chat with the Broker tomorrow.

The finance deadline is on Tuesday, so not sure if I can get anything concrete before then.

My main concern is bank ordering a full valuation and going back on the refinance offer. And the words “pre offer” in the email title didn’t inspire much confidence either.

The refinance offer came in a couple of days prior to the other one and its of a lower value, so having a condition on the lesser loan which was approved earlier on a property we already own plus the word pre on the email title is confusing.

Our broker has done an amazing job so far, and I do like to believe him completely. But at the end of the day they are in it for a profit, and its not their money on the line. What’s more neither the broker nor the bank can be held liable if something goes wrong. So IMO its in our best interest to get a second opinion. Especially given the current property downturn and all time high refinance rejection rate.

 

The property we are refinancing is inside the greater Melbourne zone (Blue region according to SRO), valued less than $600k and LVR is at 80%. BTW I am concerned about the refinancing of our existing property, not the new one. The new one already had a full valuation done and came back ok.

Not much, perhaps another 20~30k max.

I believe there is still a decent amount of headroom in our borrowing capacity and serviceability. So I don't know if the broker can re-negotiate the loan and maybe increase the LVR to cover a shortfall in the worst case. Is that something that can be done within the settlement period ? Will also ask this tomorrow

 

Spot on. Doesn't trust his broker but comes to a forum and asks strangers for answers.
You're lucky your broker even bothers

 

This is exactly what you should be relying on, I'm 99.9% sure your broker would not have told you this if they didn't think it was true.
Most times these pre-offer letters are an automated part of the lenders process, just another step prior to formal approval, you'll probably get the formal approval on Monday and all your fears will be laid to rest. It can be a bit of an emotional roller-coaster, especially when it all depends on the finance getting approved, please refer back to your broker for specific advice.

 

Thanks for all your comments. After more reading elsewhere and hearing from the professional members I feel a little better. Will have another discussion with the broker tomorrow and I go through all possible scenarios. Hopefully he’ll be able to clarify most of my doubts. Will post an update later on how it goes.

 

Broker received the final approvals yesterday, and the documents for us to sign to accept the loans; which we signed last night. The first loan still has the “Statement verification of debts” condition attached to it, but the broker reassured that its not going to cause a problem since we have provided accurate details and our incomes are clear and verifiable.

Will be putting down the deposit today. Keeping the fingers crossed that everything will turn out ok.

Thanks again for all those who provided constructive comments.

 

I think CBA document preparation team issue the formal approval letter as opposed to the credit assessor which is why you receive this pre-offer letter from credit and then 24 hours later receive the formal approval from the document preparations team. Can be frustrating when managing an application with a finance clause.

 

Its usually the assessor who is too lazy to do the formal approval letter. He / she has hand balled it to doc prep to issue the formal approval letter and issue the mortgage documents at same time. You could ask for the "decision" email. If that has "conditionally eligible" with no conditions noted the loan is 100% approved. As Jess said it may also be that the valuation hasn't been signed off on but most likely not this.