Take control with a conditional approval

For the average investor, a lot of time is spent on property searches before the right investment opportunity becomes available. It’s important to be able to move quickly and demonstrate that you’re serious when the ideal property comes on the market.

If you’re ready to take control of your next purchase, we recommend applying for a conditional approval. Here are some smart tips on how to use a conditional approval to put yourself firmly in the driving seat when it comes to realising your property goals.

Understand the opportunity
A conditional approval can be applied for at any time. It’s an important tool to give you an understanding of how much funding you can access and what conditions a lender will apply if you do try to access it.

If you apply for funding before you’ve identified the property you’re interested in, some of the conditions will apply to the property you end up wanting to buy. Other conditions will include your financial position, the rental appraisal of the property, the value of the property, and other finance criteria.

To get the best use of your conditional approval, it’s a good idea to work closely with your Mortgage Broker or Manager. They can explain and minimise the number of conditions that stand between you and the finance you need. Understanding each condition in detail will help you to quickly tick them off and access funding when you decide to go ahead with your purchase.

Don’t waste your time
Time is of the essence when it comes to property investment. Being efficient also means not wasting time on a property that doesn’t fit your investment criteria. Understanding the finance you can access with a conditional approval makes it quick and easy to identify the properties that you can (and cannot) afford.

Stay ahead of the game
Property investment is a competitive game, and the biggest opportunities often attract a lot of interest. If you find out that a property is coming onto the market early, or you think there’s likely to be a lot of interest: a conditional approval could give you the ability to move fast and lock in a deal or secure a bargain.

Get ready to negotiate
For your offer to be meaningful, your conditional approval needs to have as few conditions as possible. You also need to understand what you need to do to fulfil those conditions.

A well structured conditional approval is a tool that can help you prepare for negotiations and give you control of the purchase process. You can even take it to auction, provided you know you can move fast enough to fulfil the conditions and meet the finance requirements.

Beware of the registered valuation trap
If you want to take advantage of your conditional approval, it’s important to understand if and when your lender requires a valuation. Sometimes a lender may only require a valuation if a property goes over a certain threshold. Whenever the valuation condition is applied, being able to adapt to the impact is vital to secure your purchase.

Here’s an example:

A lender gives a conditional approval for an investor to buy a property of a value up to $800,000 with a 20% deposit. The loan is therefore approved to $640,000 with a deposit of $160,000. At auction the property is purchased for $800,000 and the lender requests a registered valuation. The registered valuation comes out at $770,000. Now the lender will only lend 80% of the valuation which is $616,000 – leaving the investor to now provide an increased deposit of $184,000 – an additional $24,000.

Keep your details up to date
The conditional approval that you receive relies upon all the information that you provide staying the same. You can keep control by keeping the information in your approval up to date.

If you don’t update your application as your details change, you may find you lose out. Any change to your situation will mean your conditional offer is invalid and the lender may need to reassess your approval. A common example is taking out interest-free purchases, new credit cards, car loans etc.

Remember the cash isn’t always in the bank

If you’re lucky enough to buy under your finance threshold, you might think the cash difference will end up in your bank. In reality your lender will take the ratios from your conditional approval and apply them to the new purchase price.

Here’s an example of how that can look:

A lender gives an investor a conditional approval for a purchase up to $800,000 with a 20% deposit ratio. The end purchase price is then only $750,000. Now the lender will provide finance for up to 80% of the $750,000 purchase price, with the investor still providing 20%.

Many property investors mistakenly believe a scenario like this will lead to a cash payment of $50,000 to reflect the difference in loan conditional offer vs. purchase price.

How iConsult can support you
Successful management of a conditional approval comes from a combination of being well informed and having the right support.

To get the best value from a conditional approval, we recommend working with our team of experts. Our experience as property investors and Mortgage Brokers means we’re ideally placed to help you structure and secure your finance and build your portfolio.