Paying 10% Deposit Before Unconditional Approval

I applied for a home loan with one of the big 4 banks and received a formal conditional approval letter, after 2 month I found a property and made an offer which was accepted, I paid 0.25% deposit and now in in the cooling off period.

The property isn't registered yet, it may take up to 6 month as per my contract to get it registered, I checked with the bank and they said they have done a valuation report and everything looks fine, however as the property isn't registered yet they can't give me an unconditional approval, I talked to my solicitor about the risk I may have and they mentioned if the bank didn't approve your loan I will loose the 10% deposit which is around the 100K mark.

From my side, I am determined to finalize the purchase but I am also afraid that during the 6 month waiting period, bank policies could have changed which may impact my loan and possibly not being able to get a final approval from the bank.

I am looking for an advise in my scenario, as to what to do in regards to paying the 10% deposit or to back off. The bank told me that it is very common that this process is followed and they haven't heard about a situation when the final approval gets declined.

Thanks in advance.

 

This is the risk you take with a long settlement on a new property. There really is very little you can do about it. By law the banks will reassess your eligibility a lot closer to settlement.

The good news is with the pre-approval you know that you'd qualify for the loan right now. What you need to do between now and the settlement is ensure that your financial circumstances either stay the same or improve.

 

Do you have extra deposit if the val comes in low?

 

Yes I do, aprox 10% of the property value

 

after you pay this 10%? So you have a total of 200k?

 

Yes that's correct

 

Legal advice on the contract terms wise. In 2 years you could be asking what happens when the property isnt settled as the builder has collapsed. Where is my deposit etc

 

Thanks for your prompt response, is it common to request a subject to finance clause?

 

No otp seller would be crazy enough to accept a subject to finance at settlement.

 

Nobody is going to agree to a finance clause that would cover you in this case.

The best you can do is to talk to your broker or banker who helped with the pre-approval to assess what the risk really is, and to save as much as you can between now and settlement. There's a good chance that the actual risk is negligible.

 

Correct, a solicitor.

 

That's the risk you take when purchasing OTP or land.

Change in policy, employment and market conditions that may affect the valuation is the risk many people takes on.