Long settlement & finance approval

A hypothetical q for the brokers - say the vendor requests a 90 day settlement. If finance is approved in the first 14 days, is that then set in stone until settlement day? Or can the lender retract their offer of finance if the purchaser's circumstances change? Thanks

 

Once the conditions of the contract are met it's pretty much set in stone despite length of settlement or changing conditions.

If the finance conditions are met with in the first 14 days which is usual for a purchase contract then the contract becomes unconditional and you need to carry on with settlement.

 

The settlement date can be renegotiated at any time once the conditions are met.

Hoping all that makes sense.

 

So if you're earning $1000 pw and get finance, then 2 months later, still prior to settlement, you're earning $300 pw which normally wouldn't service the loan, what happens?

 

Lenders will honour the unconditional approval on 90 day settlement terms - you may need to do a valuation again if it goes past 90 days, generally no more further credit checks beyond that.

Don't do it intentionally though - not worth it.

Cheers,
Redom

 

Would a finance clause cover this risk?

 

It would allow you to exit the contract in say 14 days that the clause allows for. Once that's passed you're 'unconditional'.

The bank isn't going to check again after that unless they're advised to. Its morally wrong though

 

If there is a change in your circumstances within the first 14 days of your finance clause (before the conditions are met) then yes you can reassess and the contract falls over on finance not approved.

after the 14 days, if you had provided documents to the real estate agent and vendor that you have finance the contract will go unconditional.

If there is a change of circumstances after the contract has gone unconditional and you bring it to the bank's attention and you can't get the loan - they change their mind, the agent and vendor will hold you accountable to go through with the purchase and you can be sued for damages.

Ensure everything is done withing the time limit of the finance clause.

 

Cool, thanks. I had always wondered about that

 

Just to confuse matters slightly there are a couple of lenders who do random audits after (and before) finance approval who if they discovered such a situation would usually result in the loan offer being withdrawn. The audits are about checking the banks processes and fraud rather than anything else but situations such as that described would also be caught.

 

I have had one where a written full approval was granted, I told the client, and then the assessor reissued the full approval the next day with a lower amount. Neither I nor the client was happy, but our arguments fell on death ears. I was nearly going to go legal on them, but the client gave in and accepted it.

 

Should be sweet - 90 day settlement periods are quite common.

Cheers

Jamie

 

What if it's longer than 90 days?

 

It's fine with some lenders - check with your banker/broker how long the loan offer/valuation will be valid for.

Cheers

Jamie