Investment Loan Approved 48 Hours After Loan Rejection
Mortgage Denied After Pre Approval | Case Study
Client at a glance
Mortgage Corp successfully assisted 1st time Investors obtain finance for investment property within 2 days after pre approved loan denied. Two first time property investors got their loan pre approved and signed an unconditional contract to purchase an apartment. They were getting ready to settle the property only to find out, just before settlement, their pre approved loan was declined. An unconditional contract meaning if these investors couldn’t get finance organised in time they would lose their deposit and other possible financial and legal penalties! Mortgage Corp came to their rescue and got their loan approved within 48 hours!
Client: Jenna and Howard, Client of Mortgage Corp since 2015
Marital status: Married
Income: $110,000 per year combined
Occupation: Engineer and Retail Manager
Suburb of property: Hawthorn, VIC
Objective: Obtain finance urgently for a loan that had been declined so they can settle the purchase of their first investment property.
Results: Mortgage Corp got their investment loan approved within 48 hours and settled the loan on time. Two happy investors got their first investment property and started their property investment journey
Jenna and Howard were a hard working couple who were keen to start building their property portfolio by buying their first investment property.
They thought they had done all the right things: they had initially gone to another mortgage broker who had gotten them a pre approval letter. With the pre approval in hand, they then went and signed an unconditional contract to buy an apartment in Hawthorn.
Imagine their shock when their mortgage broker went to apply for the loan and the mortgage was DECLINED, after pre approval! The reason the bank gave was that the apartment they had bought was not “acceptable security”.
Their mortgage broker had not explained to them that the pre approval they had gotten with the bank was subject to a number of conditions. One of those conditions was that the property must be “acceptable security”.
In recent times, some lenders have really tightened up on their lending policies in relation to apartments/townhouses due to the number of properties on the market. This is to make sure they manage their risk as lenders are speculating that they may have already over exposed themselves to any disruptions in the market with apartments. For example, many major lenders now include restrictions in their lending policies such as:
- lending only to 25-50% of the owners of apartments in a particular development;
- refusing to lend where the apartment size is too small to sell quickly if a client defaults; or
- refusing to lend if they determine that there are too many apartments on the market and not enough demand for those types of properties.
This means that it is now more common than ever for clients to be pre approved for a mortgage then denied, due to the recent changes.
Jenna and Howard’s previous mortgage broker hadn’t explained to them the types of security were acceptable to the particular bank that had pre approved their loan.
They went and signed an unconditional contract, without a subject to finance clause, meaning they would lose their hard earned deposit if they couldn’t secure finance in time
They had no idea what to do as they had not expected having their loan declined after pre approval. With just a few weeks left to settle, their mortgage broker was uncontactable. Not wanting to lose their deposit, they went online and came across Mortgage Corp 5 star google reviews.
- Settlement was due in a week
- Property was deemed as an acceptable security
- Unconditional offer has been made and contract signed
- Find a different lender urgently to finance the purchase so they didn’t have to lose their deposit
- Find a lender who would accept their apartment as “acceptable security” so they could get the loan amount they needed as they had their loan declined after pre approval
- With their settlement date approach, their loan needed to be approved quickly to save their deposit
- checked their contract and their pre approval letter;
- reviewed some property reports on the apartment to support its valuation;
- checked all their documentation including payslips;
and after that all checked out, Neil quickly identified a lender who considered their apartment to be acceptable security.
The Mortgage Corp Concierge Service Team submitted the loan application and thanks to Mortgage Corp premium broker status with the banks, within 48 hours, the loan was approved!
- Got their investment loan approved even after having their loan declined after pre approval
- Didn’t have to lose their hard earned 10% deposit from being unable to finance the settlement of the propertyBought their first investment property to build their wealth and reach their investment goals
- Jenna and Howard managed to settle their apartment on time and quickly got a tenant into the apartment to start earning rental income on their investment.
- Jenna and Howard were extremely happy with the outcome and have since referred a number of their friends and family members to Mortgage Corp.
Extra Notes on Pre Approvals
Contrary to popular belief, a pre-approval is NOT an approved loan. A written pre-approval from a bank, also known as conditional approval, will always have certain conditions, for example:
- Valuation report
- Evidence of current employment
- As well as a long list of other “subject to” conditions
Because the “acceptable security” condition wasn’t satisfied, the bank undertook a full inspection valuation rather than accepting the value of the property on the contract for sale. In general, a bank will value a property as security in one of three ways: a full inspection, a desktop valuation or if all pre-approval conditions are satisfied, the valuation will be the same as the contract of sale. This valuation came in under and they weren’t able to borrow the amount they needed.
Jenna and Howard could have avoided this situation if:
- the other mortgage broker had explained to them what types of security were acceptable and unacceptable before they signed the contract; or
- the other mortgage broker had been a bit more proactive and provided property reports to the bank to support the apartment’s value – this might have prevented the client’s loan from being declined; or
- they had included a “subject to finance” clause in their purchase contract. Now the bank had declined their loan and they were about to lose their deposit.
- What’s more, with the settlement date approaching, they were up for legal action if they were unable to finance the property,
Note: for privacy reasons, names and locations used in this case study are not real client names or locations.
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