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Pre-approval process to finalising loan?

Discussion in 'The Buying & Selling Process' started by househuntn, 26th Apr, 2016.

  1. househuntn

    househuntn Well-Known Member

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    Finally have my head screwed on the right way and buy my first investment property. Happened upon this forum a few weeks ago and spoken to a few industry members here and getting a pre-approval done right now

    What happens if I get a pre-approval for say 500K and when I buy a property for 500K, the lender says the property is only valued at 450K? I've read a few stories of people having lost their deposits
     
    House likes this.
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In that case they will only lend you X% of $450k. X being the LVR of your pre-approval.

    Rare to come across this though
     
  3. househuntn

    househuntn Well-Known Member

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    Thanks, can you challenge the lender's valuation, or find another lender?
     
  4. York

    York Finance Broker Business Member

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    Do you have any reason to believe that the valuation will come back short? Is there something unusual about the property that you feel will affect the valuation? Is the purchase an Off the Plan buy?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    yes and yes.
    Rarely can a valuer be made to budge though.
     
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  6. househuntn

    househuntn Well-Known Member

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    No, just reading stories on forums, etc. I haven't even got the pre-approval yet, will be using a buyer's agent on here, and getting a pre-approval done from a member as well.

    Not off the plan. A house in the outer suburbs of Melbourne. Just running some scenarios through my head....prepare for the worst kind of thing.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Low valuations are rare, especially if it's a mainstream established property. I don't recal ever having a valuation problem when someone used a decent buyers agent.

    That said, we're dealing with a shortfall in the valuation right now. In this case it's a house and land package. For this type of purchase the odds of valuation problems increase significantly.

    Once you've got the pre-approval and then found the property the process is fairly simple. The valuation is ordered and the contract, rental estimate and final figures are sent to the bank. The process to full approval is usually fairly quick and painless.
     
  8. Redom

    Redom Mortgage Broker Business Member

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    Some pre-approvals are stronger than others. Someone like CBA issues out pre-approval (homeseeker) letters without having a manual assessment done by credit officers. So its essentially a computer assessing it, based on the data that the broker/banker has filled in. This leaves greater scope for human error. If the broker/banker has forgotten to include something (e.g. a HELP debt or a deduction on the payslip), they may find a different number being loaned out once the application is being finalised.

    Whereas a pre-approval from someone like NAB is treated and processed the same as a full application - a credit officer will look at it as thoroughly as any purchase application, with the remaining outstanding documentation (Contract of Sale, rental confirmation, valuation) to be provided once a property is secured.
     
  9. househuntn

    househuntn Well-Known Member

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    Thanks everyone. Hoping to get a property in the next few months, I've delayed long enough!
     
  10. Peter L

    Peter L Active Member

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    Usually if the property price is not out of line with properties in the area you're ok. Just don't go paying ridiculous prices which don't reflect the actual value!
     
  11. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    You can - but very unlikely to be overturned.

    Having said that - it's quite rare that a valuation comes in lower than purchase price (prob see this once a year). It occurs more with OTP purchases though.
     
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  12. TforTim

    TforTim Member

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    how long does pre-approval last?
    Some said 3 months, other said 6 months. So I'm confuse.
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Some banks 3 months, some 6 months
     
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  14. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    That's the correct answer :)
     
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  15. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The law says eligbility need to be reviewed after 90 days. As a result most lenders want a new application after 90 days.

    Some lenders are a bit more reasonable about it and will simply ask for a statement to be signed or for new payslips and some other documents. They don't want a full application unit after 6 months. Just to really mess things up, some lenders now want new payslips after 6 weeks.

    Best to assume that your pre-approval is good for 90 days. Even if it expires and nothing has changed there's little value in a new pre-approval because it doesn't give you any new information, it just creates work for the sake of it.

    If your circumstances are going change after 90 days, then you need to be assessing things on that basis from the beginning.
     
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  16. TforTim

    TforTim Member

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    Thanks guys, another question popup in mind as, so extension of pre-approval means, does it hit to credit file each time?

    Thanks in advance.
     
  17. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Yes, which is one of the reasons there's no real benefit in getting multiple pre-approvals. The first pre-approval tells you that you qualify for the loan. If nothing changes (in your circumstances or the lenders), there's very little benefit in getting another pre-approval and it can actually hurt your final application.
     
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  18. Trevor Skinner

    Trevor Skinner Member

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    This is why I always have my client's contracts drawn with a loan approval clause. If you do not have one then yes, at the very minimum, you will forfeit your deposit. You will also be liable to be sued for damages.