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What is pre-approval and what is subject to finance? Many first home buyers believe you don’t need pre-approval if you intend to use a subject to finance clause in the sales contract when you find a property to buy. But that’s not the case! In this article we explain why it’s a wise move to get pre-approval on your home loan and use a subject to finance clause as well if you can.

What does ‘pre-approval’ mean?
When you’ve saved your deposit and you’re ready to purchase your home, it’s a wise move to talk to us about getting pre-approval on your home loan. Pre-approval is where a lender confirms how much money they may be prepared to lend to you to purchase a home, based on the deposit you have saved, your income, expenses and your personal financial situation.

Getting pre-approval on your home loan is intended to give you clear guidance on how much money you can spend, so that it makes it easier for you to shop for a suitable home in your price bracket. It is important to remember that the amount you are pre-approved for is the maximum amount a lender believes that you can currently afford to borrow according to your personal circumstances.

If you intend to purchase a property at auction, it is important to get pre-approval on your home loan before you attend the auction so that you can be reasonably comfortable that you can borrow the required funds. Getting pre-approval will give you a bidding limit and help you to be reasonably sure that everything will go smoothly with the transaction.

It is important to note that even with pre-approval, a lender can still decline a loan application if they do not like the property you are looking to purchase. If they feel it is over-priced or something is wrong with the property, they will not approve your final loan application. However, getting pre-approval significantly reduces the risk of this occurring.

Additionally, some real estate agents and vendors will not take you seriously if you do not get pre-approval on your home loan before you approach them, particularly when you are buying off the plan or are considering building a new home. Remember, they are frequently approached by time-wasters and ‘tire-kickers’ – getting pre-approval will help them to realize you are a serious buyer.

Benefits

  • Getting pre-approval is free and gives you considerable peace of mind, especially when bidding at an auction.
  • Your pre-approved home loan is usually valid for up to three months.
  • It helps you set your maximum spending limit – particularly important at an auction.
  • It shows real estate agents and vendors that you are serious about purchasing a home.

What does ‘subject to finance’ mean?
When purchasing a property outside of an auction, the bank will always perform an independent valuation of the property to find out its current market value before agreeing to lend you the money you need to purchase it.

When you make an offer on a home, you will be required to make the offer in writing and this is called a sales contract. In this contract, you have the option to include a clause that says your offer is ‘subject to finance’. This means that your offer is conditional upon the lender approving the amount of finance you will need to purchase that particular property. If the lender does not approve the amount of financing required, you can withdraw your offer without losing your deposit or being any worse off.

You need to remember that property sellers and real estate agents are naturally out to get the maximum amount of money for a property that they possibly can. This can often mean that the asking price of a property exceeds its market value and also the amount of money a lender will allow you to borrow for that particular property.

It is important to note that a lender will only allow you to borrow what the valuation says the property is worth – even if you have been pre-approved to borrow more. That’s why it’s important to get pre-approval and use the subject to finance clause in your sales contract as well if you can! If the lender’s valuation turns out to be less than the asking price, you can always go back to the vendor and use the valuation to get a better deal.

Benefits

  • You may think a property is a good price, but using a subject to finance clause in the sales contract gives you additional peace of mind that you’re not paying too much.
  • Using the subject to finance clause gives you room to withdraw your offer if the asking price exceeds the lender’s valuation on the property.
  • It can often help you to negotiate a better price if the lender’s valuation is lower than the asking price.

Things to consider

  • Sometimes a real estate agent will look less favourably upon your offer if you use the subject to finance clause in the sales contract. Always remember to mention that your financing is pre-approved to help mitigate any negative view. 

Remember, if you have any questions about the property purchasing process, we’re here to help. We understand that getting you pre-approval on your home loan is important as it can save you a lot of time and hassle when searching for your new home. If you’re currently in the market for a new home, then please give us a call and we’ll help you get your pre-approval organised.

In March last year, an amendment was made to the Privacy Act 1988, which allowed regulation reforms to be applied to the way credit-related personal information can be collected about you by lenders. The new system is known as ‘Comprehensive Credit Reporting’ and has brought Australia in line with the rest of the world regarding the way consumers are assessed by lenders when applying for credit and home loans.

The new rules have now been in effect for over a year, and most lenders are using Comprehensive Credit Reporting as part of their day to day operations when assessing you for a loan. This article looks at how Comprehensive Credit Reporting affects you and your capacity to borrow.

How have things changed?
Previously, lenders were only allowed to access negative information about your credit history. By ‘negative’ we mean that they were only able to access information that indicated if you had any major credit infringements, credit payment defaults, bankruptcy situations and declined applications for credit. This information did not give lenders a very good picture about your current financial situation and was only of limited use when making assessments on major credit applications like home loans.

Comprehensive Credit Reporting is designed to give lenders enough information about you to assess if you can afford to take on more debt and how much you can afford to repay. Lenders now have access to more data about you more often, which gives them a better picture of your current personal financial situation.

Information that credit providers can collect about you now includes account information including when an account was opened and closed, your credit limits on credit cards and loans, the type of credit accounts you hold (such as credit card or personal loan), as well as 24 months repayment history on any credit accounts you hold. They can also check on your overdue debts and payment defaults, the number of recent credit applications you have made recently and any publicly available information such as personal insolvency information, court writs, court judgements and directorship information.

What does this mean for you?
The new Comprehensive Credit Reporting system gives you more power to demonstrate your creditworthiness to mortgage lenders and other credit providers. It allows your recent good credit behavior to be taken into consideration and any adverse financial events to be overcome more quickly. It is also faster and easier for you to establish a credit history and compile a Credit Report.

On the downside, it is more important than ever before that you pay your bills on time. It is also important that you avoid making multiple credit applications before you decide on your credit provider as these will show up as minor defaults. If you’re not careful, you could accumulate a lot of minor defaults that could add up to make it appear as though you are under financial stress – and that may make it more difficult for you to get a home loan approved or make you ineligible for the lowest interest rates.

Make sure your Credit Report is accurate
Your Credit Report is compiled by a credit agency and is made available to lenders when you apply for a loan. Understanding your Credit Report and making sure it is correct can help to ensure your loan application goes smoothly.

Lenders will use your Credit Report to assess risk before they decide to give you a loan. We recommend that you obtain a copy of your Credit Report and make sure that is completely accurate. You can download a copy of your Credit Report once every 12 months for free from a variety of different credit reporting agencies – we recommend Veda or Dun & Bradstreet.

Once you have your Credit Report, you can address any negative information that should not be on there and take action to have it removed. Occasionally, your Credit Report can contain information that is very old, untrue or contain fraudulent entries that simply belong to someone else – so it pays to give it careful attention before you apply for any loans.

If you obtain your Credit Report and discover you have a low credit score, you can improve the situation over time with the right behavior:

  • Take action to remove any incorrect entries.
  • Always pay your bills on time or before the due date.
  • Pay down your existing debts.
  • Keep unused bank accounts open.
  • Reduce your credit limits – cancel any credit cards you don’t need.
  • Don’t make multiple applications when you are shopping for credit – talk to us about choosing the correct provider before you submit any loan applications.

Comprehensive Credit Reporting is good for Australian consumers as it helps lenders to be fair when assessing you for a loan. If you would like to discuss your Credit Report with us, we’re happy to help. Remember, we’re here to help you get the best deal available for your personal financial situation and goals for your mortgage and other financing requirements, and your Credit Report is an important part of the application process. Please give us a call today for a chat.

Buying a home is a very exciting time – particularly if you’re climbing on to the property ladder for the first time! When you finally get your deposit together, it’s really easy to get caught up in the moment and forget to budget for the other costs associated with buying your home, so here’s a quick checklist of things to include when planning your finances for your big move.

The cost of taking out your home loan
When you take out a home loan, you’ll need to budget for the extra costs involved with getting it set up with the lender. These costs will vary from loan to loan and lender to lender, depending on your personal financial situation and the type of loan you take out. As your mortgage experts, we will advise you on these costs and help you to plan your budget. Generally speaking, these extra costs may include:

Home loan application fees: most lenders charge a home loan application fee to cover the costs of legal contracts, property title checks and credit checks.

Mortgage establishment fees: in addition to the application fees, most lenders also usually charge an extra fee to cover the costs of setting up the mortgage in their banking systems.

Property valuation: before they can grant you a mortgage, your lender will need to get an independent valuation of your property – both the land and the buildings and improvements. It is important to note that the lender will not accept your valuation – even if you have paid an independent valuations expert to produce it for you.

Mortgage registration fees: all mortgages must be registered with the government and a registration fee will apply. Ask us to help you calculate how much this will cost for your particular property.

Lenders Mortgage Insurance: if your deposit amounts to less than 20% of the purchase price of your property, you will be required to take out Lenders Mortgage Insurance by law. It is important to note that this insurance is for the lender in case you default on your loan – it does not cover you in the event you cannot make your repayments.

Costs involved with purchasing a property
Purchasing a property can be quite a complicated process and it is easy to forget to budget for the costs of covering all the details involved. If you’ve located the property of your dreams, here’s what you need to cover off to make it yours:

Building inspection fees: if you decide a particular property might be the right one for you, it pays to do proper research on it by obtaining a building inspection report and a pest inspection report. These will give you an accurate picture of the condition of the property and help you assess the likely costs of maintaining it moving forward. These reports are very important to your purchasing decision, so get them organized early on in the buying process.

Government fees: before a property can become yours, you’ll have some government fees to pay like Stamp Duty and Registration of Title/Land Transfer Fee. Depending on where you live, and your personal eligibility for any concessions, the amount you may have to pay will vary. Talk to us and we will help you work out your costs in this area.

Legal fees: each property purchase requires the legal transfer of ownership of the property to you and for this you will need to employ the services of a Solicitor or Conveyancer. If you don’t have one lined up, let us know and we will give you a referral to a reputable legal adviser.

Home & Contents Insurance: your new home will be your most valuable asset and it’s very important that you organise the appropriate insurance cover to protect you against disasters like fires, floods and theft. The building insurance section of your cover needs to be taken out when you put down your deposit to make sure you are covered while the transaction is going through.

Mortgage/Income Protection Insurance: we recommend that you also budget for an insurance product that will cover your mortgage repayments in the event you are unable to work due to sickness, injury or some other unforeseeable event that causes you to lose your income. We can help you plan for your insurance needs and obtain cost-effective cover that’s right for you.

The costs of moving in
When the big day arrives and it’s time to move in and start enjoying your new home, things will run much more smoothly if you plan ahead for the associated costs. Of course, these will vary widely from person to person and home to home, so planning will very much depend on the property you buy. Here’s some things you’ll need to budget for:

Utility costs: setting up your gas, water and electricity supply may require you to pay a deposit. Plan ahead and talk to your suppliers about the costs and getting things operational on the day you move in. Remember, you can talk to several different suppliers to get a more competitive rate.

Body corporate fees:  if you are buying an apartment or a strata title property, it is likely that you will have to pay monthly body corporate fees. We recommend that you check out these fees when you are planning to buy your property as they can be quite significant, particularly if the property is in need of a lot of maintenance or repair. The first month’s fees will be due as soon as you have settled on the property.

Council rates: these rates cover the costs of your garbage collection and other services provided by your local council. The cost involved will vary depending on the value of your property so you should check with the council to determine these costs and budget accordingly.

Ongoing maintenance: all homes require ongoing maintenance and you should remember to budget for any eventuality. When you rent, your landlord pays for anything that goes wrong, so if the hot water stops working they replace it. If something goes wrong in your own home, you have to fix it yourself so it’s wise to set aside a little money for emergencies.

Moving costs: depending on where you live it could be quite expensive to organise a mover to get your things to your new home. We recommend that you get quotes from three reputable carriers and be sure to ask them to include insurance costs in their quotes.

Getting your home set up: this is the fun part! Remember that when you move in, you’ll need furniture and a full pantry. Make an allowance in your budget for the things you’ll need to get set up in your new home and really enjoy the fact that it is now yours!

Remember, as your mortgage experts, we’re here to help you with organizing the finances for your new home. We’re happy to help you with every aspect of buying your new home, from confirming the costs and helping you work out your budget, to planning your insurance needs and we’ll even give you referrals to other reliable professionals you may need to consult. And of course, it is our job to shop around to find you exactly the right loan for your personal financial situation and goals, so please give us a call today.

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In a hot property market like we’re experiencing at the moment, it can be difficult to beat the competition at auction. And with auction clearance rates running at around 80% in most capital cities, it’s clear that the majority of bidders miss out on the property they’ve chosen when the auction gavel comes down. So, how can you avoid going to auction? What can you do to secure a property when you don’t have deep enough pockets to outbid the competition on the day?

A good strategy is to try and secure the property by making an offer prior to auction day. Whilst many vendors will prefer to allow the market to dictate the best price for their property, many are open to offers before auction day.  Here are a few tips to help you make an offer that’s accepted and avoid the hassle and inflated prices that auctions can create.

1. Do your homework
Before you make an offer, you need to decide on an offer price. Start by researching recent sale prices of comparable properties in the area. This will give you a starting point for setting a fair offer price on the property you wish to purchase and give you a good idea of the vendor’s price expectations. It will also tell you if the property is in your budget and worth more of your time.

Next, research the property itself by obtaining building and pest inspection reports. If there are any problems with the property you can cite these as reasons why you are offering a bit less.

Another factor that you may need to research is demand for properties of this type in this particular area. Demand sets the price of a property and it may be high for a variety of reasons – schools may be particularly good in the area, the area may be about to undergo attractive infrastructure development projects like better public transport links or a new shopping center and so on. If demand for the property is likely to be high, you may need to make a higher offer to succeed.

If your research does not help you come up with a reliable offer amount, don’t be afraid to ask for professional help. A valuations expert can help you assess what the property is worth in today’s market. If you need a professional valuation, ask us for a referral and we’ll be happy to help.

2. Get to know the real estate agent
Negotiation is a two way street – so it is important to have a good working relationship with the real estate agent who is in charge of negotiations on behalf of the vendor. Make sure they see you as a serious buyer and they will be more respectful of your requirements and negotiations.

Remember that the real estate agent has the knowledge that can help you work out how best to play your hand. Here are some questions you can ask to help you formulate your offer strategy.

  • Why is the vendor selling?
  • What price is the vendor expecting?
  • What are the vendor’s requirements regarding settlement? Do they want a long or short settlement, do they need to extend their stay in the property?
  • Is this an investment property or the vendor’s home?
  • Have they already bought elsewhere?

The answers to these questions will help you decide how to proceed – or even if you will proceed to make an offer at all.

3. Formulate an offer strategy
Once you are fully informed, you will need to think carefully about how to present your offer. By now, you should have an upper price limit firmly fixed in your mind based on your estimate of the property’s value and your budget. No matter what happens during the negotiations, never go above your upper price limit. It’s easy to be influenced by your emotions and the clever negotiating tactics of the real estate agent, so this is a hard and fast rule you should always stick to.

If you are hunting for a bargain, it may be tempting to make a ridiculously low offer for the property. However, this could be a mistake because the real estate agent could dismiss you as a serious buyer. If you have a legitimate reason for making a low offer, be sure to tell the real estate agent why you are offering a reduced price so that they continue to take you seriously.

If you really want to obtain the property, you will need to make a genuine offer.  A good idea is to offer a bit below your estimate of the value of the property. This will mean your offer is taken seriously and give you some room to negotiate upwards if the vendor does not accept your first offer.

Do whatever you can to make your offer more attractive to the vendor. To do this you could offer to meet the same terms they would receive at auction, offer a larger deposit, meet their settlement terms or offer to extend their stay in the property after sale.

4. Be ready for the negotiation process
The negotiation process will begin once you submit your offer in writing to the real estate agent. Verbal offers are not acceptable – your offer must be in writing and signed by you before they can present it to the vendor.

Once this is done, the vendor will either accept your offer, reject it completely or come back with a counter offer. If they reject your initial offer or come back with a counter offer, then you can raise your offer price – or walk away. The choice is yours.

Sometimes the real estate agent will tell you they have already had a better offer and use it to get you to raise your offer price. Do not allow this commonly used tactic to influence you to offer above the limit you have set for the property. Make sure your subsequent offers are reasonable and fair.

Remember, auctions cost money so it can often be in the vendor’s best interests to avoid going to auction too. Once the vendor accepts your offer, you will be asked to sign a contract agreeing to the purchase and the negotiations are done!

5. Be confident
Negotiating can be a nerve-wracking experience, so it is important that you are confident about the offer you make. Doing your homework will certainly put you in a position to negotiate confidently – or walk away if the situation just isn’t going to beneficial to you.

Be sure of your budget and never exceed it. Putting yourself in a difficult financial situation simply to secure a particular property is not worth the ongoing financial pain. To help yourself negotiate from a confident place, talk to us about your budget and we’ll help you to get pre-approval on your financing to give you more negotiating power.

Remember, we’re here to assist you in any way we can. Come in and talk to us about your plans and we’ll help you to secure your financing ahead of time. It’s a great time to be in the market for a property, so call us today.


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