Preapproval is not Finance Approval

More and more Buyers are relying on a pre-approval from their Bank and placing cash offers on properties. Bankers, brokers and agents need to be aware that this is a risky practice particularly if the Buyer nominates a 28 days settlement period.

If a Buyer makes a cash offer solely reliant on the pre-approval they should only do so providing they are 100% certain they can obtain formal finance approval and settle within the timeframes specified in the Contract for Settlement.

If Bankers, Brokers or Agents are encouraging their buyer clients to make cash offers on the basis of a pre-approval they should also be advising the client to make the settlement date 7 to 8 weeks from the date of the Contract. This will allow approximately three weeks from the date of the Contract to obtain formal finance approval with a further four to five weeks to effect Settlement. Failure to allow this amount of time could result in Settlement being delayed and the buyer incurring penalty interest.

We are aware of circumstances where Sellers have refused to allow Valuers of the Bank access to the property for valuation purposes in situations where a Buyer had made a cash offer.

As you would or should be aware a pre-approval only provides advice that the Buyer can borrow up to a certain amount based on limited information given to the Mortgagee. Once the Contract is signed the Buyer still needs to submit an application for formal finance approval. The Bank will reassess the information provided to obtain the pre-approval and may ask for additional information as well as a valuation. It is not unusual for formal finance approval to take between one and three weeks.

Once the finance is formally approved the Bank needs to prepare mortgage documentation, have it signed by the client, returned and checked and this again takes between one to three weeks, not allowing for mistakes or changes the client wants to the way the loan is structured.

Moving house is one of the most stressful things anyone can do, do not add to your client’s stress by encouraging them to sign a Contract with impossible timeframes.