bank valuation and mortgage approval

P

Puesyo

Registered User
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Hi all

We have gone sale agreed on our house about 4 weeks ago. The purchasers have signed the contracts but have not deposited the money for the deposit yet. On top of that bank has to come to do house valuation next week. The purchasers have mortgage approval in principle but just wondering, in this uncertain times, has it happened to anyone that their bank has come back to say that the won't give them the mortgage cos house is not worth as much as they're about to pay? Thanks
 
It happens occasionally. If the valuer says the house is worth less than the purchase price, the lender will apply their maximum Loan to Value (LTV) percentage to the valuation.

Example - purchase price €300,000
Borrowers looking to borrow 92%, i.e. €276,000
Value says house is worth €280,000
Bank will only lend 92% of €280,000, i.e. €257,600

Up to the purchaser to renegotiate price or come up with the extra money themselves in this instance.

Presumably this is why they haven't yet handed over the deposit monies.
 

That is an interesting question. As the purchaser has signed the contract, I dont think they can pull out.(I stand to be corrected)

Just wondering now is approval in principal worth the paper is written on?

Should everyone get total, final approval before signing any contract for a house.

Are banks gambling with people lives by giving approval in principle, a person finds a house say two months later within appoval time and sign contact. If bank them refuses final approval them should they not be liable in some way to make the contract good? as a person is normally acting in good faith and could in a sense be left out to dry with contact signed and no funds to cover it.
 
papervalue said:
... As the purchaser has signed the contract, I dont think they can pull out.(I stand to be corrected)...
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I always understood that in this kind of transaction consideration / money / payment was necessary - no consideration, no contract.
 
Increasingly if I'm acting for a purchaser I make the contract conditional on the loan funds coming through. So we may have a long lead in but, at least, once the monies are released to the purchasers solicitor all uncertainty is over.

If I'm acting for a vendor, I try and keep in touch with the purchasers solicitor and try not to get locked in to a contract if there is any possibility of funds not coming through. That way, none of us are wasting our time.

Words that send shudders down my spine?

We're grand - everything is ok - no, we have not yet got loan approval but we're grand.

Its ok, the Bank Manager is a personal friend of mine - my personal pet horror!

There are a lot of very innocent ( naive?) people out there who, as I say, are more interested in their floor covering and wooden blinds, than in the financial issues of physically having the funds organised! And of course, vendors who cannot realistically with everything else on their minds, worry about the purchasers loan approval - that is for the purchaser.

Interesting but uncertain times.

mf
 
papervalue said:
Should everyone get total, final approval before signing any contract for a house.
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This would be my opinion alright. My solicitor wouldn't let me sign any contract (not that I wanted to either) until the bank had sanctioned the exact loan amount, term etc. If you sign the contract and then can't proceed due to bank not giving you the required amount, it's very hard to get out of it without some financial loss.

My process would be to do the following:

1) Get approval in principle so you know what your budget is
2) Once you find a place and agree a sale price, pay refundable booking deposit
3) Contact bank and request a formal/sanctioned loan offer
4) Bank will request a valuation report (this helps you know if you're paying more than the house is worth i.e. negative equity)
5) Once formal loan offer is received and assuming it is the amount you require, then and only then sign contracts and pay signing deposit. This is non refundable, so you have to go into the contract signing in the mindset that once you sign there is no going back (unless vendor fails to meet the stated terms of the contract in some manner).
 
papervalue said:
Just wondering now is approval in principal worth the paper is written on?
Click to expand...

The bank's maximum LTV will always over-ride the figure on an Approval in Principle. Your income might qualify you for a mortgage of €1 million on an Approval in Principle, but if you seek to buy a house for €500,000, you wouldn't expect the bank to lend you €1M.

An Approval in Principle is useful for letting you know how much your income will qualify you for, subject to the LTV not exceeding the lender's maximum - you can ask the lender before you look at properties.

papervalue said:
Should everyone get total, final approval before signing any contract for a house.
Click to expand...

Yes. Always. Without exception. This has always been so, long before house prices started dropping.
 
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