Have you been searching for your dream home for some time, but everything seems to be coming up a little short whether it’s missing out or doesn’t have the right features? Yet now you’ve come across the perfect property that ticks all the right boxes for you and your family and you are in a rush to secure it. In this situation, a small amount of panic may set in as you want to do whatever you can to secure the property and join the ranks of Australian homeowners. You may be tempted to lock everything down quickly. However, you need to be very careful with how you proceed as there are definite risks ahead. Read on to find out why it’s risky to sign a contract before your home finance is approved.
The Risks of Being Too Eager
If you have signed sign a contract before your home finance is approved without any form of protection, you can run into major problems quickly. If your lender does not come forward with the funding and you need to pull out, you could lose your deposit and the property altogether.
You do have a period for “cooling off” after signing the contract. In Queensland and New South Wales you have five business days “cool off” and in Victoria you have three days. If you pull out during this period, then you will not incur a penalty. But, three and five days are not very long time periods to confirm details with your lender, especially when banks are under the pump with many settlements booked each day at the moment.
What You Need to Do Instead
To make sure you do not run into any problems, consider our following top tips for home buyers:
1. Do Your Due Diligence
Firstly, make sure that you are not making any decisions based on just your initial assessment of the property. You need to conduct your due diligence and ensure that there are no horrors hiding behind any walls with a reputable building and pest inspection. You also need to ensure that the title is free and clear without any encumbrances or other restrictions. We are seeing many clients trying to secure a property at the moment without doing these things. Sometimes it all works out, but many times, you as the buyer can be left with a property that has major issues. Without doing your due diligence upfront, you may have no leg to stand on after the property has been settled.
2. Confirm Your Finance
Secondly, and equally as important, you will need to ensure that you can get the finance. Have you talked to a mortgage broker about your options? A mortgage broker has a legal duty to work in your best interest and will help you get everything ready BEFORE you find your dream property.
Getting pre-approved with your finance does not mean that you’ll automatically get the money required for this particular property. The lender will undoubtedly want to look at the house in question and conduct a value appraisal. If they’re not happy, then they may decide not to proceed. However, the best part about pre-approval is knowing how much you can spend on the property so you can make confident offers in the first place.
3. Consider a “Subject to Finance” Clause
Ensuring you have a Subject to Finance clause within the contract is crucial to protecting yourself as much as you can. This will protect you in most situations and give you up to 14 days (or 21 days in some circumstances) to confirm with your bank.
If for any reason, you do not get your finance sorted, this clause means you could then withdraw from the contract without financial penalty in the worst-case scenario.
In Queensland, standard contracts do include a finance clause, but it must be fully completed if it is to have legal effect. New South Wales and Victorian home buyers will have to negotiate a finance clause with the vendor, with the most commonly accepted terms being 14 days.
We see many clients either opting, or being pressured, to leave this clause out for a quick sale, however, as the buyer, it leaves you exposed to risk in case your finance does not come through in time.
Your Best Approach
The best solution is to seek full mortgage pre-approval ahead of time and ensure that you have the confidence to enter into a contract without financial risk. Talk to Top Drawer Finance Solutions, an experienced mortgage broker, before you begin your quest for your perfect home and our team can help you get your finance sorted sooner.
