Before you walk into a real estate agent’s office, you should understand your own financial capabilities so that you can know where you stand in the negotiation. You should first contact your broker, or better yet, several brokers, so that you can obtain advice on your current financial situation. Once you find out how much you can borrow, you would then know what you can afford to offer. You should also ask your broker to advise you what it is that you need to budget for as a part of your loan application.
Your broker is best placed to give you comparisons between bank offers because they should have multiple contacts into their preferred banks. When choosing brokers, make sure you spread your net wide so that you can also make comparisons between different tiers of banks. Whilst the bigger banks may have faster processing time, they also have a higher interest rate and processing fees.
Once you are certain of your loan serviceability, you should obtain a pre-conditional approval from your preferred bank prior to signing any contract. Although a pre-conditional approval doesn’t necessarily guarantee you an unconditional approval, which is what you need to complete a purchase, it is a good first indication of your ability to purchase a property. To protect you and allow you to walk away without losing any money, make sure that you negotiate a conditional on finance clause into your contract.
What is a property valuation?
Every property comes with a value in dollar figure at the time when it is valued by a qualified valuer. This dollar value is instrumental in any loan application because the value of the property at the time of the application must at least be enough to secure the borrowed amount. Hence, prior to the banks providing any borrower with a loan, they must conduct an independent valuation to protect their interest. This valuation is often billed to the borrower as a part of the loan application. Make sure that you do budget for this expense when you apply for a loan.
The length of time it takes for a valuation to be completed depends on whether the bank is intending to do a desktop valuation or a physical valuation. The desktop valuation involves the searching of the information on a computer behind the desk, whereas a physical valuation involves sending a representative to the property itself to inspect the property and apply a value to it. The latter can take at least a few days to complete, so it is important that you allow for this timeframe when negotiating for your conditional on finance time period. You should allow at least 14 – 21 days after signing to complete your loan application.
What does conditional on finance mean?
This is a condition in the contract that allows the buyers to walk away from the contract keeping their deposit intact if their finance application is denied by their preferred bank. This condition will only apply if it is specifically included into the contract. Make sure that you speak with your conveyancing lawyers before you sign to make sure that it is properly included. If the condition is not properly included in the contract, it could mean that the contract is not actually conditional on finance, which means that you will be putting your deposit at risk.
It is important to understand that the conditional on finance is not a “get out of jail free” card. You cannot walk away from the contract for any other reason than that your finance is not approved. It also generally requires you to have made a genuine attempt to apply for a loan, that is, you cannot sit on your hands and expect to be able to get out of the contract. This is generally the reason why sellers will often require evidence from you that your loan application has been denied before they will let you out of the contract.
How many days do I need to get my finance approved?
You will generally need at least 14 – 21 days to get your finance approved. This is because it can take a while for banks to pick up your application, for you to gather supporting evidence to support your application and for the bank to process your application. If the bank is reasonably satisfied with your information, they will also need time to complete a valuation before they will approve your loan. To speed up the process of a loan application, you should endeavor to do as much as possible upfront. Speak to your broker and conveyancing lawyer as soon as possible to receive support through the process. If you need more time to complete your loan application for whatever reason, you will need to have your conveyancing lawyer request for an extension of time from the seller.
Remember that if you allow the finance date under the contract to lapse without an unconditional loan approval that you are risking the loss of your deposit.
When do I need to ask my conveyancing lawyer for an extension to the finance date?
A good rule of thumb when you are trying to buy and sell properties is not to rush. Which means that you don’t do things in the last minute because that’s exactly how someone can get themselves in very hot waters. It is important to understand that asking for an extension doesn’t guarantee that it will be granted. This means that you will need to give your conveyancing lawyer ample time to seek an extension for you. You will need to consider and allow for scenarios when the conveyancer on the other side is busy or the seller is otherwise not able to respond. Hence, you should let your conveyancing lawyer know no later than the day prior to the scheduled finance date whether you will need an extension or not.