img-3A property buyer can bid at an auction without pre-approval, but there are risks.

Without a pre-approved home loan, you may win the auction without sufficient funding should the lender decline your application.

Auctions are generally unconditional, meaning you cannot withdraw your offer and you have to settle. That means, there are no subject to conditions such as building and pest inspections or finance.

If you walk away from the purchase, you might face financial penalties, like losing your deposit and being sued in any deficiency in the value of the house in a subsequent sale.

While getting pre-approval before bidding is better, there are also instances when bidding without it is not an issue.

This article centres on pre-approved home loans to help you make informed decisions when buying properties at an auction.

What is a House Loan Pre-Approval?

A home loan pre-approval is a preliminary process where the lender determines the amount they can lend for your property purchase based on your financial status. This is generally done after a mortgage broker assesses what you make versus what you spend and what your liabilities are.

After the assessment, the lender will provide pre-approval, stating the agreed-upon amount and conditions. The terms within the pre-approval can vary, but most would have a validity period of 3 months from loan application.

In general, getting a pre-approval before bidding is the best option. This way, you appreciate how much you can take out.

However, there are instances when it is a must to get pre-approval first. For example, it’s necessary to get pre-approved when:

  • you have a low deposit and no cash reserves
  • you are looking to loan towards your maximum borrowing capacity

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Why Get a Loan Pre-Approval Before Bidding at an Auction?

Having a pre-approved loan before attending a property auction offers several advantages.

1. Budget Awareness

A pre-approval defines the maximum amount you can spend for a property. Knowing your borrowing limit takes the guesswork away, gives you direction, and keeps you disciplined when bidding. You can focus on the properties that you like without overspending.

2. Better House Hunting Experience

Bidding for the perfect home can be difficult and frustrating when you don’t know what property is right for you and your budget. However, with pre-approval, you can fine-tune your house hunt and quickly narrow down your options suitable to your budget. You won’t have to spend time looking at houses that are beyond your means.

3. Bidding Confidence

It’s empowering when you already have home loan confirmation. You can focus on bidding for the best property and not worry about anything else. Also, you can compete against other bidders and have equal chances of winning the auction.

4. Negotiating Power

Sellers in auctions may be open to negotiate with the successful bidder. As a qualified (and pre-approved) buyer, negotiating will be easier when you have a pre-approved loan. When the seller knows your finances are in order, they will be more willing to talk and take your offer seriously.

5. Smooth-Sailing Purchase

Decisions in an auction are quick. Sellers can favour ready-to-buy bidders over those who need more time to settle their finances. This is particularly the case when the house passes in at auction. With a pre-approved loan, your home-buying journey will be fast, efficient, and problem-free.

The best advantage a pre-approval can give you is a higher chance of buying the property auctioned. Nothing is more rewarding than bidding for a house you like and have sufficient funding for.

When is It Okay to Bid at an Auction without Pre-Approval?

It is recommended to get pre-approval before bidding for an auction property. However, there are a few instances when it is alright to bid without it, like:

  • You had a recent pre-approval. This means your pre-approval has expired in the last 6 months and your financial situation has not changed. However, interest rates may have changed by then, reducing the maximum amount for borrowing. So, be careful.
  • Your financial status is very stable. A sizeable deposit or cash reserves and a good credit history are signs of a secure financial position. This status means you can confidently bid even without a pre-approval.

Secure a Home Loan Pre-Approval Before Bidding

Bidding at an auction without pre-approval is possible but can lead to penalties and headaches. Your home-buying journey will be stress-free and rewarding when your finances are in order. Obtain a pre-approval to know your borrowing capacity, bid confidently, and buy the right property.

At TNS Lawyers, we can help you assess or understand the conditions of your pre-approval to be in a better position come auction day. Book an appointment with our reliable property lawyers. Contact us on +61 3 9052 3214 and let’s ensure your best interests are well protected.