Follow this step-by-step approach to your new home purchase to help you make the process a well-informed one!
- The first step is to work out what you want to achieve and the affordability of your dream. It is worth spending a little time with someone qualified to look at your particular situation to work out the best options and eliminate guesswork.
- The next step in the home-buying process is to organise a deposit. If you have 20% plus costs, it will also save on the Lenders Mortgage Insurance premium, generally payable for loans over 80%. If you don’t have sufficient savings and you have a family member wishing to assist you, it is possible to put up a limited guarantee for the shortfall. This is a popular method to avoid paying mortgage insurance.
- No deposit? if you have a good enough income you may want to consider looking at No Deposit home loans (100% loans) or a Family Equity Guarantee. You will still need to save for the stamp duties and other costs, including mortgage insurance.
- The next step is getting a pre-approval. An application with supporting documentation is submitted to the lender. If the lending criteria is satisfactory, you ‘qualify’ for a home loan subject to certain conditions which the lender provides to you. This includes a satisfactory valuation of the property being offered for security. This is also known as a ‘conditional approval’.
- First Home Buyers: It is worth getting your First Home Owners Grant Application organised at this time especially if you will be using the funds towards the purchase.
Tip: It is important to understand that this is not an offer for finance from the lender at this stage as there are still conditions to be met. A pre-approval gives you confidence that you can shop for a property up to a certain price and it also lets sellers know that you are a serious buyer.
- Once you have found a property and negotiated a price, have a qualified person (conveyancer or solicitor) review the Contract of Sale. A word of caution: make certain that you have your unconditional approval from your lender before committing to the purchase (‘exchange’ of contracts).Your conditional approval will list a number of conditions that will need to be met before giving you unconditional approval. One of these will be a valuation of the property which will assess not only the market value but also other considerations, for example the type of property, where it is located, the condition, etc. Note: some properties do not meet some lender’s criteria! These may be studios under a certain size, post-code restrictions and even a “renovator’s dream” can turn into a nightmare if the bank will not accept the risk of a property in a bad state-of-repair and you don’t have sufficient equity in the property, or sufficient funds to undertake renovations and repairs.
Auction sales: There is no turning back if you have purchased a property at auction as contracts are binding. It is extremely important to make sure you have met all conditions before your buy a property at auction.
- Once all conditions are met, the lender will issue an unconditional approval and the loan agreement and mortgage documents will be prepared. This lists all the information about your loan including the amount, the interest rate, repayments, the term, fees and charges and other information. It is important to read, check and understand the details.
- When the documents have been signed and returned, the process now proceeds towards settlement .
- First Home Buyers: Make certain you return your First Home Owners Grant Application at this time. The lender will organise the payment of your grant at this time.
Your solicitor and the vendor’s solicitor will work out who gets paid what on settlement day. Apart from paying the vendor the agreed purchase price, other typical payments are adjustments for municipal rates and water rates that the vendor may have prepaid, bank fees, real estate agent commissions and legal fees.