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Buying at auction is an exciting time, but it can also be a little scary. You need to know all of the home loan and property auction related financials before the hammer falls, to make sure that you’re prepared for anything!
Here we address the most frequently asked questions our home experts receive about buying at an auction.
Are pre-approvals a guarantee of getting a home loan?
Some home buyers are misled into thinking that home loan pre-approvals are a guarantee to get their home loan. This is not true, home loan pre-approvals indicate home loans potential for an applicant but it does not obligate the lender to provide you with a home loan. Financial pre-approvals (also called conditional or Approval in Principle) are a valuable price guide for indicating how much you can afford to spend but at the end of the day, they are not a binding commitment from the lender.
Once you’ve placed your auction deposit, you need to start the process of your formal loan approval. The benefit of your pre-approval is that this process should be more efficient and save you some time. So what’s the bad news? Your lender can still reject your formal application.
Given the fact that your financial situation was previously evaluated, there will be an evaluation of whether your financial condition has changed. A change in employment or working hours might be considered to have a bearing on your borrowing capacity, which has an impact on the loan amount you would qualify for.
Can I seek multiple pre-approvals?
Making numerous pre-approval requests with various lenders is a surefire way to make a lender anxious and can give them grounds reject your application.
Lenders also take into account the property’s market value as a measure of whether your purchase provides adequate security. A property valuation after you’ve made your auction deposit could lead to a loan rejection if the lender believes your offer is over-priced or the lender has reached the limit of their exposure on your building or development.
Fortunately, our home loan experts advise you which lenders have credit policies that suit your circumstances and increase your chance of loan approval. You will be guided to lenders that give dependable pre-approvals and that have loan suitability criteria appropriate for your situation.
Should I inspect the property?
You may want to consider getting a home inspection before agreeing to purchase your property at auction. While some home auctions are new builds or are being sold “as is”, many others are older homes that will require home inspections.
Should I be worried about my deposit?
Regardless if you have home loan pre-approval or not, you must be willing and capable of paying your deposit on the spot. In most cases, you’ll be up for 10% of the purchase price, but make sure you read your contract of sale.
Buying a home at auction means there is no cool-off period like you’d find with a private sale. Contracts must be exchanged and the transaction concluded between the seller and buyer under the terms of their contract. If you back out, you will lose your deposit and may be held responsible for any losses incurred by the vendor as a result of re-auctioning the property.
Check with the seller or real estate agent ahead of the auction about how the deposit should be paid, but the most conventional methods are bank transfers or cheques.
Are there hidden costs when buying property at auction?
There aren’t necessarily hidden costs, but there are costs some borrowers simply forget about. There are many expenses involved with purchasing a home, regardless of how you go about it, such as stamp duty, legal fees, inspection costs and insurance. Make sure that you have saved enough money for the deposit and stamp duty, but also consider any insurance you might want to put in place before purchasing.
If all these factors seem overwhelming, but don’t worry! You can always work with our team of experts who are ready and waiting to partner with you every step of the way – from finding your perfect home or investment opportunity right down to making sure you find the perfect home loan solution for your circumstances.