Do you need a finance condition if you already have a bank pre-approval?
The simple answer is yes. Having a finance condition clause in your contract gives you time to ensure the bank will loan you the pre-approval amount.
Even with pre-approval from the bank or broker you still need a finance condition to ensure you are not let down when purchasing a property. With pre-approval on finance you are not guaranteed that unless the bank is happy with the purchase you are making. A number of factors may stop your purchase from going through or may take a few days to sort out. This clause allows you the time to get yourself organised and understand the situation better and if the finance will be approved.
Good day, Andrew Murray here from the Apartment Specialists, talking about finance.
Now, you may have gone to your bank, and you have a pre-approval. Let's say you've got a pre-approval for $400,000. Now, when you go to meet with an agent, and the bank has told you, "Yes, you can buy an apartment up to $400,000", do you need a finance condition? The answer is, absolute yes.
What a lot of people don't realise with apartments is, I often come across a purchaser and they'll go to purchase an apartment. They'll put in an offer. It will be subject to finance with a particular bank, and they've got a pre-approval. They'll go that bank and the bank will turn them down. This is for a number of reasons.
One, the bank, for some reason, may not want to lend on that apartment and often will not even give them a reason. But a lot of occasions, the most common reason is that the bank has already lent to too many people in that building, i.e. they have mortgages on too many apartments in that building so they see it and analyse the risk and see they are over exposed.
This just recently happened when I sold an apartment in the CM3 Complex through Westpack, and Westpack had a lot of mortgages in that complex. So, what happened was, a purchaser I was dealing with went to go and-- they had a pre-approval and they didn't need much of a mortgage at all and they went to Westpac and they said, "Absolutely not. We have a huge percentage of owners in that building that we already have mortgages with."
So, the important thing is, you've got to organise your finance, whether it's through your broker or it's through your bank. Yes, you get a pre-approval because you need a guide on how much you can spend and what you're looking for, but when it comes down to winding up that sale and purchase agreement, even if you have a pre-approval, make sure you put in a finance condition - generally, conditional on five working days. That way you contact your bank, see if it's okay, arrange a valuation and ensure there's movement.
So, don't let a pre-approval give you confidence that you can go through a sale and purchase agreement without that clause. This is often difficult when you come up to bid at auction, because it means you have to do this all prior. This is going to take time and obviously cost money, especially if you're doing it with lawyers and things like that, and it can get quite difficult. But yes, just remember, always put in a condition there, even if you do have a pre-approval.
Hope that helps. Cheers.