We recently took a call from a client at 7pm on a Friday evening, after a bank had sent over 20 documents about a client we’d never heard from. Privacy issues aside, it took a few moments to work out what was going on.
The story unfolded to reveal that a trusted relationship with the bank PLUS a pre-approval to purchase a property, both amounted to nothing, less than 2 weeks out from settlement. The pre-approval was based on the client’s understanding of their financial situation, completed and lodged several weeks prior… BUT not the verification of the financials against the bank’s now very stringent policies. Needless to say the client was emotional and totally confused.
The moral of this story? Pre-approval, or even conditional approval, can be completely worthless unless full financials have been submitted, verified, and the “conditions” attached to the approval are within the control of the client.
Some common conditions include:
- Subject to suitable property held as security(if the actual property isn’t known or hasn’t been valued, the bank may not accept it, or may loan a lower value against the property. This is very relevant for non-metro properties, particularly large or small properties, or properties that sit outside the standard “residential home” box.
- Subject to satisfactory valuation (similar to above, if the property could be non-standard or at risk of a lower than market valuation, the answer could be no, or additional funds may be required to complete the purchase)
- Subject to acceptance or verification of financial information(this means that the bank has not verified the financials at all, as per the example above and should never be relied upon)
- Subject to closure of certain loan facilities(if this can definitely be met and is in the control of the client, then it is fine)
- Subject to evidence of Funds to Complete (so long as funds are already available or are 100% guaranteed to be available prior to formal approval, this is fine. Beware of pending property settlements – they do fall over and/or get delayed!)
There are plenty of others, so the rule of thumb comes down to whether the bank knows and has verified everything to do with the transaction. If there’s any uncertainty, it pays to double check.
For more tips & advice, contact Lanie Conquest or Nicola Tucker at Surf Coast Finance
With over 40 years combined banking & financial services experience, they help local families & businesses make smart financing decisions.
Ph: 0418 938 646