Hi All,

This article was contributed to our site by Premier Mortgages

[quote:f6b90de440]During the course of the year we have heard and seen many humorous and not so humorous stories concerning people buying property and I thought, in a light hearted way I could share these with you while at the same time delivering a message and guide for investors.

So the first lesson when looking to borrow money is to be aware that any changes in personal circumstances or the property?s physical attributes during the purchase process may substantially affect the credit worthiness of your application.

Some examples of this are:

Building Physical Conditional - Dry Rot

Our clients purchased an older style villa and gained finance approval subject to an acceptable Registered Valuation (R/V). The valuation came in with the comment that the dwelling had an area of dry rot. The lender withdrew their approval. We then obtained an approval from another lender subject to the dry rot being removed, plus a building report and a new Registered Valuation confirming that there was no further dry rot in the dwelling. By the time the work was completed, settlement date had lapsed and the vendor applied penalty rates.

What Staircase

This client purchased his property unconditionally with a three-month settlement. As part of the Sale & Purchase Agreement he negotiated early access to the property to complete some improvements. The loan approval we obtained was subject to an acceptable R/V. To save money he decided to wait until the improvements were completed before obtaining the R/V.

Unbeknown to the vendor, his solicitor or ourselves he promptly removed the stairs and converted the property into two dwellings. When the R/V was presented to meet the lenders approval condition it was noted that the property was now two dwellings and therefore did not meet local zoning requirements, nor did the property have a Code of Compliance for the work completed. To settle, the purchaser was required to reinstate the stairs and return the house to a single dwelling. By the time this was completed and the Code of Compliance obtained, the property settled a month after the agreed settlement date resulting in penalty interest being paid to the vendor. This exercise cost our client approximately $7,000 in total but we managed to settle the loan.

Don?t give up your day job

In 2003 one of our clients unconditionally purchased an apartment off the plans. Settlement was upon completion some 18 months later. Based on his financial position then finance would not have been a problem for this client. However as he is self-employed after going unconditional he decided to cut back his work, with a resultant drop in earnings. He also decided to increase his commitments during this time. The result of these actions was that he was now not able to meet our prime lenders serviceability requirements. We did obtain funding for him but at a higher cost than he would have preferred. We settled without penalty.

Sloping Floors

A South Island investor found a real bargain, a property supposedly selling below valuation with good tenancy agreements in place. He purchased the property without a) visiting the property and b) meeting all of the lenders requirements. The R/V came in at well below purchase price because of the location of the property causing the dwelling?s piles giving up the ghost. The dwelling was on a significant lean. Our client had two options, re-pile prior to settlement or get out of the contract. He chose the latter. A costly exercise we feel.

The second lesson is being aware of how to mitigate the risks of purchasing and financing property. In the past year we have seen a market that didn?t allow investors a lot of time to negotiate property purchases because it was by and large a sellers market. This often meant the purchaser took additional risk to secure the property and then worried later about whether it was a good security for a lender or can the finance be arranged.

If you do not need to borrow you only have to worry about yourself, whereas if you need finance you need to worry about your lender as well.

A common example of this is:

Unconditional at Auction without Finance.

I could earn a lot if I got a dollar or two for every time we have come across this during the past year. We specialise in the investor market as we believe property investors should. Unfortunately we see so many purchase properties at Auction before arranging finance then they come to us to magically find finance for them. With some we are successful because they have done the sums but with others it?s a battle. The cost of not being able to settle on a property purchased unconditionally can be substantial.

The lesson to be learned from all these examples ?If there something you can learn from this, it would be to spend as much time on learning about your proposed property and how to finance it as you do on searching for it.?

So here is your checklist for the year when buying and financing property:

1. Know how much you can borrow
2. Don?t change your personal or financial circumstances after signing the purchase agreement
3. If you do check with us first
4. Know what you are buying from a lenders perspective
4.a. Is its condition acceptable
4.b. Is its location acceptable
4.c. Is the type of property acceptable
5. On the basis of 3. above check how much a lender will lend to you against the property
6. Is the property?s cash flow acceptable to the lender

Your Premier broker is there to advise and help you with this. Follow the rules and you will be okay.

Rob Tucker
Premier Mortgage Group.

Hope you found it useful.


Donna :icon_razz: