We’re so excited for you. You’ve finally found the house of your dreams! It has a gorgeous fruit bearing apple tree in the garden, marble kitchen bench top and stain-glass windows you’ve always wanted. But what are you doing going to the auction with an empty bank balance? We’ve got enough tips and traps to tell you, enough to fill up a pantry anyway. Read on to see how you can better arm yourself before going to auction.

Show me the money, honey – Why you need a pre-approved loan

Wouldn’t it break your heart to see the house of your dreams get snapped up by someone else, just because you didn’t have your finance organised before going to auction? The best start to your property adventure is to secure your finance first before making your next move – and that includes even house-hunting! This helps you stay realistic with the end goal and what you can actually afford to borrow. After all, there is no real point in pursuing luxury penthouses in the CBD when you can only afford a studio.

If you win the bid at auction and lay down your hard-earned deposit as security, then you’re on a roll. But have you got your home loan approved yet? If you don’t, then you risk losing your deposit, especially if the financial provider doesn’t offer you the loan amount you need to make that particular purchase. Furthermore, it’s ludicrous to even start bidding without knowing what you’re pre-approved loan will be. Why? Because auction results are completely unpredictable and the property you’re interested in could fetch a higher price than you anticipated paying in the first place.

Whether you’re aiming to purchase a family home or investment property, Mozo strongly advises that you seek for a pre-approval first before going to auction. Ask a finance specialist or broker to help secure you the loan you need – alternatively, you can approach a financial lender directly to see what your options are. To compare lending products, use Mozo’s lending provider comparison tool.

Mortgage Broker vs Bank

The best thing about a mortgage broker or home loan negotiator is that they know all the ins and outs of the finance industry, sometimes better than bankers! Okay, that’s probably a little far-fetched, but you’ll find that many brokers in fact started off as bankers or accountants or anywhere else in the finance industry. Brokers usually have a very detailed perspective and understanding of how the industry works. Often commision-based paid by the lender, not you, brokers are usually more dedicated to being creative in finding a solution for your personal situation.

We’re not saying that banks can’t also find a solution for your personal situation as well, but the major difference is that brokers are in communication with about 30 different lenders daily. Banks are in communication, well, with themselves, so the options are a little biased and limited to say the least.

Not to say that they’re not competitive! After all, banks very well know what their opposition are offering competitive rates, and may even tailor a package to suit you. But you’ll have to shop around to find the best deal. There’s no point in signing the next 30 years of your life to one dealer – that concept sounds like a massive commitment, doesn’t it?

Whether you choose a bank or a broker, both will do their very best to secure the amount you can afford as quickly as possible, especially while there is a pending auction to bid on! You may not have the money you need in the kitty, but what you can take with you is a pre-approval certificate that authenticates the amount you get to spend at auction. And don’t forget your checkbook! You usually need to pay your deposit on your own, but that will depend on the individual arrangements you’ve made with your lender.

Can I afford to go to auction?

This is the thing. You may be drooling over one particular house and its potential, but you need to be realistic as to how much you can actually afford. Look at the whole picture and not just your monthly repayments.

Depending on the structure of your loan, some of your repayments may be variable and unpredictable, and other parts fixed. Will you have enough flexibility in your budget to cover a higher repayment if the rates go up?

If you’re purchasing an investment property and it remains vacant for a short period of time or requires major renovation, will you be able to cover the shortfall?

Other expenses you need to factor in include:

• school fees/tuition
• car loan repayments
• groceries
• utilities
• petrol
• holidays
• renovations
• and more.

Rule of thumb: Don’t get suckerred into buying a home at auction for more than it’s worth and more than you can afford to repay.

Research is everything

Take some time to explore the postcode you want to purchase in. Compare property land sizes to actual dwelling spaces as well as renovated vs unrenovated, strata levies etc to give you a reasonable perspective as to the expected amount vs space for that particular suburb. Some of these factors will affect the value of the property and what you end up paying for it.

As long as you have general overview on the expected price value for property in the area you want to invest, then you’ll be better equipped to bid according to the right value of the property, and not a sometimes inflated amount at auction.

It can be a risk for many people who bid with the heart, when buying at auction, and not with their brain at auction time. When you think about it, the pressure is on, there’s hype and build up before auction, there’s very salesy rhetoric from real estate agents weeks prior and it all seems to be just one big giant fanfare. It’s no wonder many people avoid auctions like the plague. Nothing wrong with a good, honest property listed For Sale. Bargaining power at it’s best.