Lender Changed Pre-Approved Loan Amount on The Day of Auction

holdfestron on 17/12/2021 - 11:55

A friend of mine got a pre-approval from one of those online lenders . The pre-approval was given when he was house hunting in the western Sydney area. He recently changed his area to south Sydney (as the west has gone above his budget). There's an auction going for a property today that he was interested and he told the lender that he will be bidding, and ask for an update/confirm on the pre-approved amount a few days ago. The lender came back today saying that the pre-approved amount has decreased (by 40%), and as a consequence, my friend can no longer participate in the auction, and he can not find any other lender in time to give him pre-approval today. He paid for conveyancing and all the costs to prepare before the auction, and that is all gone to drain.

Not sure whether you guys experienced this before and how did you deal with it?

Financial

closed Comments

  • Settero on 17/12/2021 - 12:00
    +16

    Looks like there is something you are not telling us or your friend is not telling you.

    A 40% change shows a drastic change in circumstances.

    • holdfestron on 17/12/2021 - 14:37

      Don't know…maybe some of his circumstances changed that lead to the reduction (which I am unaware of), I didn't get the chance to discuss it in detail with him.

      • jv on 17/12/2021 - 14:51

        I didn't get the chance to discuss it in detail with him.

        Then why are you posting this here?

        • holdfestron on 17/12/2021 - 14:56

          Is that against the forum's rule?

          • jv on 17/12/2021 - 15:01

            @holdfestron: It's against common sense rules.

            • holdfestron on 17/12/2021 - 15:04

              @jv: ok. you win.
              I will report this post to mod to close it then.

  • weezlebub on 17/12/2021 - 12:08

    yeah, your friend should really go through formal channels and get an actual pre-approval, that might take a month or more …

    if he's rushed in without doing it properly, he's going to have to take the hit and be better prepared next time

  • Quantumcat on 17/12/2021 - 12:09

    Did he lose his job?

    • holdfestron on 17/12/2021 - 14:36

      i don't think so. He is still employed.

  • 87percent on 17/12/2021 - 12:13

    does the location of the property change the pre-approval amount?

    • stratbargain on 17/12/2021 - 12:30
      +2

      It can, yes (although I can't imagine it would by 40%) I suspect they did a pre approval based on the figures he gave and then did a further "auction ready" approval and credit check and adjusted it accordingly.

      • holdfestron on 17/12/2021 - 14:39

        sorry I am not familiar with the approval process. Is the "auction ready" approval=the amount the lender will guarantee to loan?

        • stratbargain on 17/12/2021 - 14:40
          +2

          I know with my lender they did a "pre approval" but needed to do further credit checks etc to give me an auction ready approval. I assume the difference is with auction there is no option to do "pending finance" so if you win an auction there is no backing out so they want to be 100% sure you can service the loan.

          Pre-approval for a normal purchase can be done pending finance so there is always the option of backing out.

  • upended on 17/12/2021 - 12:14
    +2

    Just ask your friend to speak with his financial institution to understand why they decided to reduce it by 40%. There has to be a reason.
    Pre-approvals generally last for 6 months. If your friend's circumstances have changed, that might impact the amount.

  • djones145 on 17/12/2021 - 12:19
    +1

    shire or bondi tax?

    also post 1 Nov, the banking regulator changed some requirements, i think it was aorund making sure people could afford based on a scenario of 1.5 percent incres ein inetrest rates (from 1%)
    so peoples lending ability fell quite a bit

    was the pre approval before 1 Nov

    • holdfestron on 17/12/2021 - 14:44

      I am not sure..it could be before 1 Nov as he was looking for a property for a while now

  • silenthillrocks on 17/12/2021 - 12:26

    South Sydney more expensive than west. Story doesn't add up.

    • holdfestron on 17/12/2021 - 14:35
      +1

      erm…i am not familiar myself. Is Panania area more expensive than Paramatta? you could be right, all I know is that the area he was looking at changed

      • silenthillrocks on 17/12/2021 - 14:40
        +1

        Maybe he meant south west, as Panania would fit more in that direction (Bankstown/Liverpool/Campbelltown areas)

        • holdfestron on 17/12/2021 - 14:45

          Ah yes. You are right.

  • Hithere on 17/12/2021 - 12:36

    Are you sure that 'Your friend' has told you the whole story OP?

    Something drastic has happened for this to happen. Did the lender find out something 'Your friend' didn't tell them previously?

    • silenthillrocks on 17/12/2021 - 12:54

      Plot twist, the friend is actually the OP

      • Hithere on 17/12/2021 - 13:22
        +1

        WOW, I was completely fooled there. j/k

    • holdfestron on 17/12/2021 - 14:32
      +1

      Nah, that's really what happened to my friends. Not sure about the details though. I don't think he has changed job. The only difference between the time he got pre-approval and now is the area he was looking at.

  • KaTst3R on 17/12/2021 - 12:55

    Pre-approvals can be adjusted based on location but a massive drop means his circumstances have changed or he inflated some information in his first pre-approval. Pretty sure you are not getting the full picture. This is not normal and dont waste any time thinking about this if your friend is not willing to be frank about it.

    • holdfestron on 17/12/2021 - 14:43

      ok. Thanks. It seems that the forum agreed such massive drops is unusual and there might be something that my friend didn't tell me…
      I thought it was pretty weird to have such a big decrease in loan amount too…

  • tsunamisurfer on 17/12/2021 - 12:59
    +6

    Why would one pay for conveyancing when one hasn't even attended let alone won the auction???

    • KaTst3R on 17/12/2021 - 13:01
      +2

      What you dont get a lawyer to go through the contract before the auction? That is riskiest shit ever.

      • tsunamisurfer on 17/12/2021 - 13:14
        +5

        Thats not conveyancing.

        Conveyancing is the process of settlement when both parties have signed the contract of sale.

        • KaTst3R on 17/12/2021 - 13:25
          +4

          I see the confusion here, I think what OP meant was a paid contract review by a conveyancer.

          • holdfestron on 17/12/2021 - 14:47

            @KaTst3R: Yes, I believe he paid the conveyancer to review the contract.

    • illogicalerror on 17/12/2021 - 13:01
      +1

      Not only why, but how?

  • Baysew on 17/12/2021 - 13:34
    +1

    I would deal with it by telling a friend that might post on Australia's foremost bargain site to get opinions from random internet people.

  • bobbified on 17/12/2021 - 13:38
    +1

    … from one of those online lenders.

    That's probably the problem right there.

    • silenthillrocks on 17/12/2021 - 13:41

      Exactly, preapproval are not always worth the paper their written on unless the lender has done a comprehensive assessment with a formal credit check.

  • holdfestron on 17/12/2021 - 14:53

    Thanks guys. I think in summary:
    1) avoid online lenders—-something new that I learn…I thought those online lenders are just as reliable considering the number of regulatory requirements they have to fulfill.
    2) change in circumstances (which I am not aware of)

    I've told him to talk to the lender to find out what's causing the change.

  • Typical16-bitEnjoyer on 17/12/2021 - 15:05

    from one of those online lenders

    Pay peanuts, get monkeys. They should have gone with a reputable lender.

  • Moderatorscrimshaw on 17/12/2021 - 15:06

    Thread closed per OP's request.

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