Preap­proval fi­nance and sign­ing Sale and Pur­chase agree­ments

Southern Real Estate Guide - - Profile - By Allistar Walker

Pre-ap­proval Fi­nance is a let­ter that is pro­vided to you by your lender or bro­ker, con­firm­ing that the lender has, based on the in­for­ma­tion pro­vided, agreed that you are able to bor­row a cer­tain amount of money.

The pre-ap­proval let­ter will usu­ally be con­di­tional on the prop­erty lo­cated be­ing suit­able se­cu­rity to the bank and that other con­di­tions as sub­mit­ted to the lender for the pre-ap­proval fi nance re­main un­changed.

It is not nec­es­sar­ily the ba­sis that a bor­rower can go ahead and make an un­con­di­tional of­fer.

This should only be done in con­sul­ta­tion with your so­lic­i­tor and ei­ther your bro­ker or lender.

This is par­tic­u­larly more crit­i­cal if you are bor­row­ing over 80 per­cent of home value or chang­ing some of the con­di­tions of your preap­proval. For in­stance buy­ing an apart­ment in­stead of a flat or house may have dif­fer­ent lend­ing cri­te­ria.

Bor­row­ing over 80 per­cent may re­quire a reg­is­tered val­u­a­tion, par­tic­u­larly if it is a private sale, rather than through reg­is­tered real es­tate agents.

There can be other fish­hooks and that is why I sug­gest you al­ways con­sult with your bro­ker/ lender and so­lic­i­tor.

Your so­lic­i­tor should al­ways vet your agree­ment be­fore you go un­con­di­tional. He or she may pick up some­thing on the ti­tle you weren’t aware of.

An agree­ment can be made sub­ject to this.

Pre-ap­proval is crit­i­cal to the process of pur­chase. With­out it you may be tak­ing an un­nec­es­sary risk.

The Sale and Pur­chase Agree­ment: Nor­mally com­pleted on a stan­dard Real Es­tate In­sti­tute doc­u­ment, this is a le­gal con­tract. Once it is agreed to and signed by both ven­dors and pur­chasers it is bind­ing on all par­ties.

Some peo­ple sign th­ese not re­al­is­ing the im­pact and then find they want to get out of the con­tract. This is usu­ally be­cause they have let their heart rule their heads and not taken pru­dent ad­vice as out­lined above.

Don’t take risks with th­ese; the con­se­quences are for­fei­ture of de­posit and even pos­si­bly be­ing sued for breach of con­tract.

The doc­u­ment states full le­gal names of ven­dors and pur­chasers, itemises the le­gal prop­erty de­scrip­tion in­clud­ing street ad­dress. The de­posit amount is stated and gen­er­ally your land agent will ask for a 10 per­cent de­posit which is con­sid­ered stan­dard.

There is no le­gal re­quire­ment for a 10 per­cent de­posit. The de­posit needs to be re­al­is­tic to show you are se­ri­ous but if you don’t have 10 per­cent don’t of­fer it.

For in­stance if you are a 95 per­cent or 100 per­cent pur- chaser, of­fer no more than five per­cent of a 95 per­cent pur­chase. 100 per­cent pur­chasers should make their de­posit as small as pos­si­ble.

We tend to rec­om­mend that with the higher prices of houses, a lesser de­posit is re­al­is­tic. Also re­mem­ber that if you bor­row the de­posit you will be pay­ing the in­ter­est.

Ask in your pre-ap­proval ap­pli­ca­tion what de­posit you can get from your lender.

The Fi­nance Date is the date by which you must have fully ap­proved un­con­di­tional fi­nance. If in your pre-ap­proval there are cer­tain con­di­tions to ful­fil, make sure that you have al­lowed suf­fi­cient time to get th­ese done to the lenders sat­is­fac­tion e.g. if a val­u­a­tion or build­ing re­port is re­quired, it may take longer than a week be­fore the lender gets it, let alone looks at it.

It is not un­re­al­is­tic to have two weeks to fi­nance and then two weeks to set­tle­ment. Re­mem­ber you are mak­ing the of­fer, try to get it as much on your terms as pos­si­ble. The Land Agent is act­ing for the ven­dor and will try to get it as much in favour of the ven­dor as pos­si­ble – that is their role.

The Set­tle­ment Date is the date you take pos­ses­sion. Fi­nance must be paid over from your lender to the ven­dors ac­count on that date or you will face penalty in­ter­est charges for de­layed set­tle­ment.

Your bro­ker is a good friend here, to make sure the lender has sent doc­u­men­ta­tion to your so­lic­i­tor on time and gen­er­ally en­sure the process runs smoothly.

Many real es­tate agents will au­to­mat­i­cally fill in the lender re­quired with a gen­eral term such as ‘any fi­nan­cial in­sti­tu­tion’. We would ad­vise cross­ing this out and in­sert­ing a spe­cific bank or lender that you have pre-se­lected.

Any al­ter­ations or changes to the con­tract must be ini­tialled by all par­ties or a fresh con­tract re- drawn.

If you fail to take this sim­ple pre­cau­tion and your favourite lender finds any rea­son not to lend, you may be forced un­der the con­tract terms to bor­row from an­other lender on terms un­suit­able to you.

It doesn’t rule out us­ing an­other lender if you wish. You bro­ker will help you with this.

We nor­mally ad­vise clients not to re­veal to a land agent how much they can bor­row or pur­chase to – the rea­son be­ing that in any ne­go­ti­a­tions you don’t re­veal your full hand to the op­pos­ing camp.

The land agent is in the op­pos­ing camp. This, of course, brings into ques­tion bro­kers who come un­der a real es­tate ban­ner, as to who they are re­ally act­ing for. Make sure your bro­ker is to­tally in­de­pen­dent.

Auc­tion Agree­ments are usu­ally sig­nif­i­cantly dif­fer­ent from stan­dard sale and pur­chase agree­ments, e.g. you can’t make an of­fer sub­ject to fi nance or con­di­tional on check­ing ti­tle mat­ters and coun­cil records. You will need to make th­ese en­quiries be­fore bid­ding.

In sum­mary, Sale and Pur­chase con­tracts are not to be taken lightly. Make sure the key peo­ple (so­lic­i­tor, bro­ker, banker) who will as­sist you pur­chase your prop­erty, are kept in the loop.

Most times there will be no prob­lem, but if there is, you will need th­ese peo­ple.

To con­tact Allistar Walker, phone 0800 005 066 or go to www.mort­gage­help.co.nz

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