Hello everyone,
I am an invisible ozbargainer for nearly 3 years, only asking in some AMAs, this is my first post asking you for your advice.
I am in VIC, and will go to a house auction next month.
The house will be sold around 800k based on my estimation, I have 450k deposit, earning 70k annually.
My contract is fixed-term 1 year but for a famous organisation and I am likely to have my contract switched to on-going, therefore only this bank agreed to give me a conditional offer while others banks required me 1 years working period from now. I really like this house and would like to buy it despite higher rate.
I have a conditional offer with 4.25% for 480k with following terms:
- Verifying your financial information (already sent them my payslip as proof)
- Confirming with you that the proposed loan meets your requirements and objectives;
- Conducting a valuation of the property if required;
- Confirming whether or not you need Lenders’ Mortgage Insurance or a Low Deposit
Premium; - Providing a loan offer to you (if you enter into a contract to purchase a property before then, there is no guarantee we will make the offer).
The problem is, based on house auction rules, I have to pay 10% deposit (which means 80k), but the bank does not guarantee to give me a loan after that.
Here are some of my questions:
- Are there any chance that the bank do some 'trick', refusing the loan offer, to push me in financial difficulties to rip me off by increasing home loan rate? (this bank used to offer me a $5500 car insurance while AAMI offers $1000, therefore I had bad impression)
- What is the maximum action price that I can bid to ensure the bank loan offer for not over-bidding the house?
- Are there anything, any risks that I did not mentioned? Are there any better options for me?
Thanks Ozbargainers, best regards!
Firstly congratulations! That's a fantastic deposit to have towards your home!
The following comments are based on the information you have provided and may not cover every eventuality.
Some of these conditions are pretty standard eg valuation if required… depending on the location of the property and the bank's policies, they may not actually conduct a valuation but rely instead on purchase price. Still if you're only looking to borrow 60% of the purchase price you should be okay. All the same I'd ask them if they have any restrictions on the area or type of property you're wanting to buy.
I am assuming that the property is in good condition, not located under / near high voltage electricity lines/ towers, not subject to mines subsidence, all additions or extensions council approved etc.
Also the LMI or LDP are just basic warnings and in your case should not apply.
Confirmation of the loan meeting your objectives is pretty straightforward and not something to worry about.
Verifying your financial information is a bit more involved than just looking at your payslip though. I don't know exactly what you have provided at this point, so will tell you the sorts of docs I'd be looking for if I worked for your bank (I do work for a mortgage provider, but not a bank:-) )
Firstly as you are a contractor I'd be looking for consistency of income eg I would want to confirm your earnings for the 2018 and 2017 financial years. Secondly I would be perusing your bank statements, looking for evidence of undisclosed debts. Next I would be checking your credit report and investigating any recent enquiries.
I would also be looking at the source of your deposit, whether it's savings, sale of asset, or gift….
As for over-bidding - if you have a total of $930k from loan and own funds, you need to make sure that it will be sufficient to cover your purchase price as well as your costs. Work out what the stamp duty, conveyancing and registration fees will be and include things like cost of moving, to ensure you can cover them out of funds available. Deduct these costs from your $930k and what's left is the absolute maximum you can bid. DO NOT leave yourself short; you don't want to be scrambling at the last minute trying to sell your car or borrow from family to cover a shortfall at settlement, or even worse, have the settlement fall through! Better to leave yourself some wiggle room in case your expenses are higher than you expect. No harm in keeping a couple of thou towards any changes you want to make to the property as well.
Don't worry too much about the interest rate. You may be signing a 30 year loan agreement but there's nothing stopping you from switching out to another bank if your work circumstances stabilise. Provided you've not chosen a fixed rate loan there are very minimal costs involved in switching these days, and once you meet the requirements of other banks (at least one year remaining on contract etc) you should be able to find a variable rate lower than 4%pa.
Good luck!