When mortgage pre-approvals fall over
Sometimes non-bank mortgage lenders step in when bank preapproved financing falls through, says Mark Collins, chief executive of Liberty Finance.
But how can that be, if a home loan is pre-approved?
The answer is that the preapprovals banks issue are ‘‘conditional’’, and should not be taken as a cast-iron offer of finance. Wouldbe borrowers can minimise this risk by understanding the terms and conditions, and keeping the bank in the loop while shopping for a place. When banks can pull the plug: The bank discovers something troubling: Kiwibank’s Homehunter website allows people to seek preapprovals and get a ‘‘yay’’ or ‘‘nay’’ in 10 minutes. But when the bank scrutinises the details more closely, including the would-be borrower’s credit record, the pre-approval may be cancelled. If you think there may be something in your credit record that’s a problem, tell the bank.
Things change: A shock redundancy, a firing, a switch to shorter hours at work – people’s incomes and lives can change in three or six months. If prices are raging up, then people can find their deposit’s buying power shrinking, which can also be a problem. BNZ spokeswoman Nicole O’Brien says: ‘‘Usually it’s a material change in circumstances or a non-suitable property that lead to the withdrawal of the approval.’’ People try to buy a leaky building: The bank’s security when it makes a home loan is the property. But not all property built in the last 30 years meets bank criteria. Pre-approvals may be withdrawn if you want to buy a plaster-clad property, or apartment.
There’s a credit crunch: If the banks flow of funding from overseas dries up, they can cancel pre-approvals. The Reserve Bank swoops: The moment ASB cancelled all its preapprovals in 2013 when the Reserve Bank announced its loan-to-value ratio restrictions has gone down in banking legend. BNZ’s terms and conditions say it can cancel pre-approvals if the current interest rate on which the preapproval is based changes, but also if the bank’s policy, or the regulatory requirements change. You change your mind: Preapprovals are for certain types of purchases. At Kiwibank they are ‘‘for the purposes of buying a home to live in’’, so if you decide to buy a place in Hamilton and remain renting in Auckland, then the pre-approval means nothing. The time limit lapses: Different banks issue pre-approvals for differing lengths of time.