This is a question that our Auckland lawyers are often asked by prospective purchasers.
The answer is YES! You most definitely still need to include a finance condition in your sale and purchase agreement if you have pre-approval from your bank or broker.
The bank looks at 2 things when approving a loan:
1. The Borrowers
Firstly they look at the borrowers to determine if they have the ability to service the loan, have sufficient deposit saved and meet the banks requirements in all respects. If your application ticks all the boxes they will give you pre-approval which tells you how much they would be willing to lend.
2. The Property
Once you find a property and and sign a Sale and Purchase Agreement (that should include a finance condition) you must submit this to your lender who will then decide whether or not the property meets their lending criteria. Oftentimes banks ask for valuations or even builders reports on the property and they will also consider the type of property and location.
There are many instances where an individual/couple are pre-approved for a loan but the bank does not approve the property. If you had put in an offer that was not conditional on finance you would be in a very bad predicament – legally obliged to complete the purchase (dependant on other conditions of course) and unable to obtain finance.
What if your buying at Auction?
Many properties , especially in Auckland, are selling at Auction so you may not have the opportunity to put in a conditional offer. If this is the case you need to submit the property details to your bank or broker before the auction and ask them for unconditional approval. It is important to get any approval of finance from your bank in writing so you can be sure as to whether the bank have given unconditional approval or approval subject to conditions such as “approval subject to a registered valuation”.
Need more information or legal advice?
If you need any advice or assistance with buying a property in New Zealand please get in touch with us. We are Auckland lawyers who specialise in property transactions. If you are not able to come into our Epsom, Botany or Pukekohe branches we have a mobile lawyer service that can come to you. Call 09 638 6969