Got my pre-approval today, next steps for going to an auction

Hi everyone,

I live in NSW and looking to buy a house near Parramatta. I got my pre-approval from ANZ today for a maximum purchase price of $1M.

I have a few questions before I go to an auction and bid:

1. Do I need an "unconditional approval" if I bid at an auction? My mortgage broker says unconditional approval applies only to non-auction sales. For auction sales, the unconditional approval will start after I win at an auction
2. Since the auction sales are "unconditional", what happens if I win at an auction and the home loan isn't approved? Do I lose the 10% deposit that I pay on the auction day?
3. My mortgage broker also says that if the auction amount is more than what the bank is going to value, I'll have to pay the difference out of pocket. If I bid and win at $1M and if the bank values it at only $900K, I have to pay $100K out of pocket. This sounds strange as I will have no idea of bank valuation before the auction.

 

This is scary. How much % of the purchase price are you expecting the bank to lend you? How much deposit do you have?

 

I have about $170K deposit. The total loan amount approved by ANZ is $895K inclusive of LMI.

 

At what lvr? 90% of the valuation? How much is the lmi?

 

Yes, around 86% to 90%, depending on the property price.

 

Hmm, I wonder how the bidders are confident to purchase at an auction with this big risk. Personally I'm scared to bid given this will be my first purchase.

 

If it's a normal house it's unlikely to be an issue. The contract is usually market price. Valuations nearly always come in at purchase price unless it's a quirky security/OTP.

 

I think whomever you're dealing with could explain all this a lot better...

1. Unconditional approval occurs when the loan is fully approved. This can't occur until you've purchased a property as the bank needs to know what the property is and if they're comfortable with it. The pre-approval is as far as you can get for the moment. When you purchase a property (at auction or otherwise), the bank will value the property, then they'll issue the unconditional approval.

2. If the loan isn't approved, you would likely loose your deposit.

3. The most likely reason the loan would not be approved is if you purchase an unsuitable house, perhaps paying too much for it.

However... When buying at auction you're almost guaranteed not to have a problem as long as (1) the house is habitable and (2) you've got a reasonable understanding of what it's worth and don't pay too much. Valuers almost always agree with the purchase price.

In 16 years I've seen a valuation have on a purchase only a few of times. In each case, the property was sold in very extreme circumstances. One was where the property was sold on reality TV (aka The Block) which tends to be artificial in its marketing. Others have been off the plan, high density appartments (always risky) and another was a development site.

Don't worry about not getting the finance at this point. The best thing you can do is talk to your broker about about any property you plan to purchase and hopefully they'll be able to provide you with some resources to help you ensure you're paying a fair price. If you do pay a fair price, you won't have a problem.

 

Yeah you would think there's no better valuation than an auction.

 

If it was me I will work my way like this. I have $170k/20% = $850k is my target Purchase Price where I don't have to worry about LMI. That's my magic number. I wont go passed that budget NO MATTER WHAT. Next is to have the Building Report done PRIOR to Auction so I know what sort of house I'm buying, also have a Valuation done cost about $500 I believe last time I inquired. From there I know how much I can play around with my magic number or if even I can afford the house. You can probably also find comparable house in the area that is SOLD recently to have an idea how much this property is going to sell.

 

My latest purchase was in the auction:

I got conditional approval from CBA:
"Subject to Valuation Requirements : Satisfactory valuation once property is located. Maximum LVR may be reduced at the. Banks discretion (including availability of LMI) depending on location of the property."

If you are going to Auction, please make sure, you don't have 20 conditions on your conditional approval.

after the auction, it took a week for me to get unconditional approval.

 

Agree however not easy when looking for PPOR ;-)