Beware of pre-qualification from banks

Article from Property 24, 11 November 2010

People who have applied for mortgage finance from a bank may receive a notification telling them that they have pre-qualified for a bond worth a particular amount but this should not be taken as a guarantee that the bank will grant a bond once the offer-to-purchase has been signed and accepted.

“Many buyers take this pre-qualification as a pledge from the bank that it will grant the bond and this is simply not the case,” warns Rob Lawrence, national manager of Rawson Finance.

“What happens is that when the bond application is submitted the banks do a much more thorough investigation into the client’s financial position and, in many cases, they then change their minds and decide not to grant the loan,” he says.

If a buyer is bidding on a property without a clause that makes the sale subject to a bond being granted then they could be in serious trouble and could be sued by the seller for damages.

There are a number of reasons that a bank may decide not to grant a loan. These include:
- Affordability based on the applicant’s financial standing;- The condition of the property or the fact that it might be over-valued in the opinion of the bank’s valuators;- The purchase price of the property;- The deposit being offered.

Currently the success rate for bond applications is under 55%.Lawrence points out that the pre-qualification by the bank is not a pledge and is not binding in any way so any buyers should insist that the clause making the sale subject to a bond being granted must be inserted in the offer to purchase.