Case Study - If you're Pre-approved Should You Go Unconditional?

All banks aren’t created equal. One might say “no” to your home loan application, another might say “yes”, and another still might say “yes” but mean “maybe”. Rupert explains how your pre-approval process can go wrong and how best to avoid the pitfalls.

This month’s case study involves a client of mine who recently almost came unstuck on a property purchase and almost lost their deposit in the process—potentially scary stuff.

My client (who wasn’t my client at the time) was granted a generic mortgage pre-approval by her current bank. Because she had this pre-approval, she made an unconditional offer, and paid the $50,000 (10%) deposit. Following this, the bank came back to her and declined her finance application. 

Upon further inspection, the client’s income came from a few sources and the bank was not happy with using some of them. At this point I was introduced to her. She was understandably nervous about the bank’s decision and the future of her deposit. If we couldn’t get her finance sorted she would lose her $50,000. 

After 20 minutes of discussion, it was evident that the bank had not clearly explained the terms of the initial pre-approval and had insinuated that she was good to go. It was also quickly clear that she was likely to get finance from at least one other bank. This bank would be happy with her various incomes and would, without much fuss, approve her mortgage. After a stressful weekend of waiting, we managed to secure her finance with this second bank.

The Lesson: Banks have different ways of assessing income and assessing what is affordable for a client. Just because one bank has declined you, doesn’t mean all the banks will do the same. To avoid stress, talk to a Mortgage Adviser early.

Rupert Gough is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.