Liability Risk Management - Finance Brokers - Specialising in Mortgage, Leasing and Business Finance

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When Is My Loan Approved?

Far too often clients come to me and say "I spoke to the lender and he said the loan was approved, but now they have backed out and I'm committed to the contract".

A lender is selling his wares, just as any other trader is selling their product or service. The manager will be keen to evaluate your proposal, as he has a budget of new business to write.

At the end of the interview he might say "We'd like to look at that".

Translated this means, "I think this sounds like a reasonable proposal and I am prepared to submit an application to the approval authorities".

It is not an approval.

All lenders require a written submission with supporting financial details. They cannot approve a loan from a verbal discussion.

When the loan is approved, it normally comes with some additional conditions yet to be met, for example, a satisfactory valuation, approval from the mortgage insurance or a priority agreement with another lender.

A condition is a means by which a lender can say 'the loan is all right if you can satisfy some concerns, security sharing arrangements or unquantified information in your application'.

The valuation condition is a good example. By accepting your estimate of value the lender proceeds as far as they can before asking you to spend money. You then know that if you pay for the valuation, and the property value is up to expectation, the loan is approved.

Your loan is not approved until all conditions have been met to the lender's satisfaction.

I have seen clients pay over deposits on property transactions before valuations or mortgage insurance conditions have been fulfilled, only to find the value falls short or the mortgage insurer does not accept the risk sharing. The lender cannot complete the transaction but they have not reneged on the approval.

I had one client resign from his job, assuming an approval has been obtained because he (thought he) knew the value of his property - it was clearly stated on the council rates notice. The rates notice valued the property at $179,000, the valuer at $130,000.

Do not commit to a course of action until you have an approval in writing and then only after all conditions have been fulfilled to the lenders satisfaction - not yours.

And remember, documentation, can be a pain but it is worth spending time to get your position right at the start.

When borrower and lender enter a transaction, they do so in the spirit of the transaction. When something goes wrong, the spirit flies out of the window and everyone runs to the documents.

I know there is some euphoria about purchasing a new asset, but don't act until you know your loan is 'unconditionally' approved and then spend a little time getting the documentation right.

It is worth it in the long run.

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The above article was recreated from Peter Ryan's booklet :
"A Small Person's Guide To Big Lenders".

For information on how to obtain additional articles or the entire booklet,
please email Peter Ryan