You’ve been saving hard and have the deposit to purchase your first home. You’ve looked at many houses and finally found the one. You’ve made an offer through the real estate agent and your offer has been accepted by the vendor.
You organize your pest and building reports. You know your finance is arranged as you’ve been pre-approved by your chosen lender. WRONG!
A pre-approval of finance from a lender is only an “indication” of the amount the lender considers you may borrow based on your previous financial circumstances.
Until you make a formal loan application for the house you have chosen and subsequently you receive written confirmation of finance approval from your lender noting the details of the house you intend to purchase plus a signed loan offer, the lender is under no obligation to provide you with finance.
If you were to exchange contracts based on the “pre-approval letter”, you may not be able to complete your purchase as the finance has not been formally approved for that house.
Not being able to complete your purchase may result in the vendor being able to terminate the Contract, keep your deposit, sue you for any shortfall in the price upon resale of the property (if any) and also sue you for costs and expenses associated with your inability to complete the Contract.
Once your offer has been accepted, you need to make an appointment with your lender as soon as possible to complete a loan application for your chosen home. In most cases, your lender will arrange for a valuation of the property to be carried out to ascertain whether it will provide them with adequate security for their loan.
Many lenders need to submit your loan application to their mortgage departments located either in Sydney, Melbourne, or Adelaide. With Covid-19 in the mix, this takes time so you need to contact your lender quickly as this will enable you to safely exchange contracts and secure the property you wish to buy.
Some lenders provide a letter stating your loan has been approved subject to various conditions set out in the loan contract. This means you must wait to see the loan contract document to find out what terms and conditions you must comply with before the loan will be approved.
At Everingham Solomons, we take our role of protecting your interests very seriously. We work hard to help you secure the home you wish to purchase and make sure you do not end up in the position where you risk incurring a significant financial loss because you were unable to complete your contractual obligations. It might seem like it can take a long time before contracts are exchanged, but it’s all in the interests of looking after you – our client, because Helping You is Our Business.
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