Many clients commit to a property on paper but do not realise they have also committed according to the law. Signing a contract is a flick of the pen and it can be hard to reconcile this with real life.
However, if you have signed an agreement to purchase a property you have a legal obligation to complete the purchase (after the waiting period and assuming your vendor meets his or her obligations), in real life. The most common mistake people make in relation to this obligation relates to the supporting finance.
If you have signed a contract to purchase a property you should by law have access to the money required to settle the property – i.e. cash in the bank or approval for a loan. If it is the former it is critical that you place the cash in an account that you will not be tempted to access. But it is the latter then causes the most problems with settlements in our experience. If you have been preapproved for a loan, it has been approved based on your current circumstances, if you change these circumstances significantly, the approval may no longer be valid.
This is a very common mistake that property investors make. They do not realise that the following changes to their personal circumstances will affect the ability to borrow money:
BUILDING A FAMILY
Having a dependent child effects peoples borrowing capacity a couple of ways. Firstly it can reduce your ability to earn an income and secondly it will reduce your disposable income. In turn, this will reduce your serviceability (i.e. your ability to pay back the loan under a range of circumstances). So, if you plan on increasing your family prior to settling a property that you have purchased, ensure that you tell the lender or your broker so they can calculate your loan capacity appropriately.
INCREASING YOUR CREDIT LIMIT
Even if you do not draw down on your credit, your total credit availability will be deemed to be a loan. As a result, this will reduce the amount that you can borrow at settlement. So, please, no new platinum cards until you have settled your property.
BUYING A NEW TOY
Fast cars, jetski’s, 75-inch tv’s, they all sound like fun but they can also be very expensive. Where a purchaser takes out a personal loan prior to a settlement they may not be able to finalise their loan, default on their purchase and lose their deposit. All of sudden the cost of your lifestyle purchase has probably tripled.