Oh man there’s been some doozies lately. Has the moon been in a funny position? Have the planets gone cock-eyed? A few weeks back a young couple were shown on Fair Go having bought a real lemon of a house after failing to get it properly checked out. This week we bring you one from our own files where a client purchased a property without bothering to put in a finance clause. Whaaat!

The finance clause: If you need to borrow money to buy a house then it’s essential you get familiar with this clause because it allows you to back out of the deal if it turns out the bank won’t give you the loan.

Use this clause even if you’ve obtained a pre-approval from your bank. While a pre-approval tells you how much the bank will lend, you still need to confirm the property itself is acceptable security for the loan.

This week’s doozy: Client makes an offer to purchase a farm property for $960k. There are no conditions at all in the offer and he pays a 10% deposit.  He’s got $400k cash to put towards the purchase so a loan of $560k is needed.

Bank said: ‘For property like this we can lend 50% of the purchase price. Don’t forget, you promised to give us $100k of your cash to pay off your other loan by the end of the month too. So, looks like you’re going to be short. By the way, our lending criteria is much tighter than it was when you saw us 2 years ago and your income is such that affordability isn’t there even if the equity was. Sorry’.

Because the offer is unconditional he is contractually obliged to purchase the property. But without a loan to make up the purchase price he’s looking at a penalty of approximately $380/day until he can figure it out. His $90k deposit is gone. What a mess.

Solution? Yes there is a loan we can sort for him but rescue money is never cheap. Since the Global Financial Meltdown not only has bank lending criteria become tough/er but the wide range of alternative lenders have gone (btw, they took  your grandmas retirement savings with them).

Remember Bridgecorp? Clegg & Co? Property Finance Securities? Capital & Merchant? And about a dozen others? Gone burger. These guys were way more flexible than the bank but only a little bit more expensive. Oh how things have changed!