The Home Buying Process
For most people, a house will be the most important and expensive asset they will ever own. Most first home buyers know this, but not many understand the process of settling the home of their dreams.
After finding the right property, you will need to find the right home loan and get approved. Getting the right advice is essential!
Have you saved a deposit?
Having a large enough deposit should be your first priority when setting out to buy your first home. The size of the deposit required will depend on the value of the property and the amount you are borrowing, otherwise known as the loan to value ratio (LVR).
As a general rule, this is how much you will need to buy a house:
For an existing property: 9% to 10% of the purchase price
- 5 per cent deposit
- 4 per cent stamp duty
- $1,500 conveyancer
- $1,000 other costs
For a new property: 2% to 5% of the purchase price
- 5 per cent deposit
- No stamp duty (some states only)
- $1,500 conveyancer
- $1,000 other costs
- First Home Owners Grants may apply (some states only)
Bear in mind that this is only a guide and costs and grants may vary from state to state.
Please use our FHOG Calculator to find out what grants and stamp duty exemptions you may be eligible for.
Ultimately though, the more you can save for a deposit, the better!
This helps reduce the amount you have to pay in Lenders Mortgage Insurance (LMI), a one off fee that is charged when you borrow more than 80 per cent LVR.
You can find out how LVR affects your LMI premium by using our LMI Calculator.
Most lenders have also introduced a mandatory genuine savings policy for everyone who applies for a home loan. Policies are changed regularly so please check our genuine savings page to find out if you can qualify for a loan.
Most banks would like potential borrowers to have a separate savings account with at least 5 per cent of the purchase price.
Our specialist mortgage brokers know the banks’ policies so enquire online or call us on 1300 889 743 to find out what else qualifies as genuine savings.
What might stop you from getting a loan?
The banks want a low risk borrower, that is, someone who will pay back their loan in full and on time!
The purpose of the loan and, in particular, having a good or bad credit history can have a significant impact on which lenders you can qualify with.
Recently, banks have developed and implemented their own credit scoring systems. This takes into account:
- Your credit history, including defaults, bankruptcy and judgments on your credit file
- Your financial stability, including job history, address and ability to repay debt
- The type of property you intend to buy and how easy it would be to sell based on the bank’s valuation
All lenders view risk very differently, but our credit score calculator can give you a great guide of what they’re looking for.
Having a ‘black mark’ on your credit file doesn’t necessarily mean you will be declined, but you may hit a wall when your application is handled by a bank’s credit department. Applying with the right lender for your situation is the key to getting approved.
Not many lenders approve home loans when you have multiple or combined credit issues, whether you’re dealing with a bank or a specialist lender.
For instance, if you’re currently on a probationary period at work, earning part of your wage as a bonus and applying for a guarantor loan, a lender may accept one of these but they won’t accept all three!
Even with a clean credit file, your income, family situation and having unsecured or outstanding debt are just some of the factors that determine the amount you are eligible to borrow.
Consolidating debt and cancelling credit cards are two ways that you can improve your borrowing power.
One of our specialist brokers can provide you with an assessment of which home loans you can qualify for. Enquire online or call 1300 889 743!
Organise your team
Putting together a team of experts should be done prior to negotiating on the price of the property.
To get the best advice, it’s ideal to have:
- A mortgage broker (that’s us!)
- A conveyancer/solicitor (or a settlement agent in Western Australia)
- Accountant (if you are a property investor)
Conveyancing costs can range from around $400 all the way to $2000 but it’s important not to choose a conveyancer just because they’re the cheapest.
Most people know friends or family who have bought a house so they can recommend a solicitor for you.
Better still, have a look at our list of recommended conveyancers for each state.
With the help of one of our mortgage brokers, you can work out which lenders you qualify with and which home loan is most suitable.
We will collect your supporting documents, such as payslips and bank statements, before submitting your application to the bank that you have chosen.
Some banks issue a pre-approval within a few hours, others can take up to a week. On the spot pre-approvals aren’t always reliable, so be careful! Ask your mortgage broker for an estimate of how long it will take your lender.
If your situation is complex then you may need to provide further information or documents to the bank. This can delay the process by a few days, so it is important that you apply for pre-approval before you begin looking for a property.
A pre-approval means that your home loan is basically approved subject to the bank accepting the property that you plan to buy. Not every property is accepted by the banks, so take a look at our property types page before you make any offers.
You should aim to get pre-approval six months prior to buying a house!
Does the property meet your needs?
Congratulations, you’ve been pre-approved! Now is the time to start shopping.
There are many things to consider when buying a house, the most important of which is figuring out what your expectations are.
Are you a couple? Do you have children or are you planning to? Is it convenient to get to work? Is there public transport nearby?
Although you’ll want a house to suit your lifestyle, it’s important to be open-minded as well. Consider homes that aren’t exactly what you’re looking for.
There may be a slight renovation involved but ask yourself, is it worth the money you’ll save on the purchase price?
Real estate agents can give you some great tips but the final decision in your hands. That means you’ll need to get out into the real world to get a proper feel for the property and its location.
Researching the property market
Firstly, you should know that Australia has one of the most stable property markets in the world.
Websites like RP Data, Residex and Australian Property Monitors are all reputable sources that provide up-to-date data on property sales nation-wide. Our mortgage brokers have a paid subscription to some of these websites and can provide you with free property reports and other data.
Most real estate sites give you the option to set-up alerts for new properties on the market, not only in your area but houses in surrounding suburbs.
These websites can be very useful:
The trick here is to set the alert criteria to a fairly wide field in order to capture houses that may still suit your needs.
For example, if you want to a buy a property with two garages, search for houses with one or more in the description. The house with one garage may very well be large enough to accommodate another car!
Above all, you need to actually go to open houses and follow these tips:
- Emerging suburbs are winners
- Local infrastructure like public transport is a great selling point!
- Compile a list of comparable properties that have sold in the area in the last six months to get a better idea of the market.
- The more inspections you go to, the more you’ll begin to learn what to look out for.
- Get advice from an accountant (if you are a property investor).
If you’ve found a house, you can even order a valuation before you submit a loan application. As a top tier specialist mortgage broker, we can order a valuation for free! Call us on 1300 889 743.
Different types of property
There are various types of property, each with their own unique characteristics. As a general rule, properties fall into four umbrellas:
- Vacant Land
Buying off the plan
Buying off the plan is when you commit to buying a property before it has been built. As the name suggests, you can only really see what the house will look like based on building plans.
Developers often invest heavily in marketing so you need to be cautious and avoid paying more than a property is actually worth. Compare the property that you are buying to sales outside of the development to ensure you don’t pay a premium.
While marketers often say that you are buying a property below market value, this is rarely the case except in a stagnant property market.
Since there is a long time between when you sign the contract of sale and when you become the owner, many banks will not issue your loan approval upfront. The value of the property or your personal situation may change before you become the owner so the bank cannot commit to approving a loan for you until close to the settlement date.
If the bank valuation of your property comes in lower than expected or you do not meet the bank’s lending criteria at the time you apply for a loan, then you may be unable to complete the purchase. You may lose your deposit and you could even be sued by the developer.
Some of our lenders can consider approving your loan up to 18 months before settlement which will reduce the risk of you being unable to complete the purchase. Most banks can only assess your loan up to 3 months before settlement.
Please enquire online or call us on 1300 889 743 to speak with one of our brokers.
Because you’re buying off the plan, it is imperative that the contract of sale be checked carefully by your solicitor or conveyancer.
Things to watch out for:
- Is your deposit being released to the developer?
- Beware of sales taking place prior to council approval of construction
- Is the builder reputable?
- Are you able to get your money back if the project isn’t completed?
Our off the plan home loan page can provide you with more information.
If you’re a first home buyer, you may be considering building a home. After all, it is a major milestone in your life so you want it to be unique.
Whether you decide to buy land then build, or purchase a house and land package, you’ll need to apply for a construction loan.
These types of loans can often be complex, with the property valued at each stage of the build and builders paid in instalments as construction progresses.
Luckily, our specialist mortgage brokers are experts in construction loans.
Please enquire online or call 1300 889 743 to find out if you qualify for a loan.
Check out our full list of property types for more information.
Will the bank accept my property?
Although your loan has been pre-approved, that doesn’t mean that the bank will definitely issue you a formal loan approval. The bank must accept the property that you are buying as security for your loan.
Not all properties are accepted by the banks. The most common property types that are rejected are:
- Properties under 50m2 internal area.
- Land over 2 hectares in size.
- Properties in a poor condition.
- High rise apartments.
- Heritage listed properties.
- Flood zoned properties.
- Properties in small towns or remote locations.
- Converted warehouses.
Not sure if your property will be accepted? Ask your mortgage broker before you proceed with making an offer.
Making an offer
Agreeing to a price on a property can be a daunting challenge for some people but the key is to ask yourself some basic questions before you get to the negotiation stage.
Find out why the seller (vendor) is selling the property in the first place. They may be under pressure to sell and, therefore, may be more willing to go lower on price.
If a property has been on the market for around six to ten weeks then it is a good idea to make a low offer. Owners that have had their property on the market for more than six months usually have unrealistic price expectations and so will not accept a low offer.
Compare the selling price with that of comparable properties that have sold in the area in the last six months. Does the asking price match up? You can read our guide on how to value a property for more information.
If possible, don’t make an offer first! Let the vendor make the first move because at least then you know where their expectations lie.
For instance, if a house is advertised for $500,000 but the seller is actually willing to sell for $450,000 you may not be aware of this if you offer $480,000 right away.
Negotiations can be quite difficult because usually you’ll be dealing with the real estate agent and not the vendor directly.
The best strategy is to not appear to be too keen and to hint that you are in negotiations to buy another property. This is the same strategy that agents use on you when they say there is another interested buyer!
Pick out the faults and anything else wrong with the property even if it really is your dream home.
How long is the cooling-off period?
When you have had your offer accepted and your conveyancer and mortgage broker has given you the go ahead, you can then sign the contract of sale and pay a holding deposit.
You then have a cooling off period in which you can still back out of the sale. Sales by auction do not have a cooling off period.
In some states a cooling off period can also be in the form of a clause that allows you to cancel the contract if you cannot obtain formal approval for your loan. This is normally called a finance clause however it can go by other names.
The cooling-off period for property sales varies across Australia but the legal standard for each is as follows:
- NSW – 5 business days
- VIC – 3 business days
- QLD – 5 business days
- TAS – No cooling-off period
- SA – 2 business days
- NT – 3 business days
- WA – No cooling-off period
Bear in mind though that these are the minimum rights and obligations you have as a consumer. Each state usually has its own industry standard.
For example, NSW has a cooling-off period of five days but it’s best to negotiate 10 business days to allow for approval of your loan and/or giving the valuer time to access the property.
The industry standard for WA and QLD is anywhere between 14 and 28 days.
Regardless of a state’s cooling-off period, it is negotiable! You can always ask for a longer cooling-off period and in some states you can also waive this right completely.
Extending the cooling-off period
What if the cooling-off period is about to expire and you still don’t have your loan approval? You can simply ask for an extension.
At the end of the day, real estate agents don’t get paid unless the property is sold. If you’re close to having your loan approved, they know they’ll have to give you sufficient time to get your finances in order.
However, if there are a large number of potential buyers then the agent may decide not to extend your cooling-off period. In these cases, vendors may only grant you the minimum cooling-off period or no cooling-off at all depending on state consumer laws.
Please be aware that agents will almost always put you under pressure not to extend the cooling-off period and to commit to the purchase instead. They usually say that there is another interested buyer.
In the majority of these situations this is just hot air. Take your time and never commit to a property until you are certain that you have your loan approved.
Pest, building & strata inspections
You should complete your due diligence on a property during the cooling-off period. For an auction this should be completed the week before the auction.
The main purpose of inspections is to ensure the house you are purchasing is sound. Your conveyancer can normally recommend a good building and pest inspector to check the property for you.
We strongly recommend that you put on some old clothes and go with them to inspect the property. By talking to them about potential problems first hand you can better understand how serious they are and what you need to do to rectify them when you are the owner.
If you are buying a strata title property (a unit or townhouse) then you will also need to arrange a strata inspection. This is where a company investigates the management of the strata corporation including the management of their finances and any future repairs and issues with the property.
Should I go to an auction?
Auctions can be a prime opportunity to land a great deal on a property. However they also have a risk to you as the buyer.
The reason for this risk is that there is no cooling-off period. You are required to pay your deposit right away and cannot back out!
We recommend that first home buyers and people with small deposits avoid auctions if possible.
Most properties in Melbourne are sold by auction so often you can’t avoid them.
Preparing for an auction
If you haven’t prepared for the auction then you can’t bid! Organise the below points well in advance to avoid missing out:
- It’s important that you speak with your conveyancer and mortgage broker to get their advice before going to an auction. If either your conveyancer or mortgage broker recommends that you do not bid at the auction, then do not bid!
- You will need to be conditionally approved for your home loan before the auction.
- Decide on a maximum bid.
- Your solicitor or conveyancer must review the contract of sale before the auction.
- Complete your inspections (see above) a week before the auction.
- If your bid is successful, you will be required to pay the deposit immediately to the agent.
- If you are not successful at the auction then you will have lost the money for your inspections and for your solicitor to review the contract!
How does an auction work?
In most states you are required to register and prove your identity prior to the auction. Talk to the real estate agent and your conveyancer to find out if this is required in your area.
While there are various articles on different bidding strategies, in our experience most of them make little difference. The person who is willing to pay the most wins!
The seller sets a reserve price and if it isn’t reached, the highest bidder usually has the first opportunity to negotiate with the seller.
The winner of the auction will need to sign the contract of sale and pay their deposit immediately.
Contract of Sale
After you and the vendor agree on a price (or you win an auction), then you will need to sign the contract to purchase the property.
This goes by different names in different states, for example:
- NSW, VIC, QLD, SA, NT– Contract of Sale (COS)
- TAS – Contract for Sale
- WA – Offer and Acceptance (O & A)
The contract of sale includes such information as:
- The sale price.
- The details of the deposit.
- The cooling-off period (if applicable).
- The settlement date.
- Any special conditions in the contract.
The process varies from state to state so check with your conveyancer or solicitor for specific information. Of course it goes without saying, don’t sign the contract until you have the go ahead from both your mortgage broker and conveyancer.
Get formal approval first
The contract of sale only becomes binding once it is signed by both the seller and the purchaser. Do not sign the contract until you know that you are approved for finance!
You need formal approval, which means the bank has accepted the property that you are buying as security for their loan and has confirmed that they are willing to advance you the loan funds.
Until you have formal approval you don’t have any guarantees that the bank will give you a loan.
Remember that in most cases it isn’t possible to get your loan formally approved prior to an auction. For this reason auctions always carry an element of risk, if the bank doesn’t accept your property as security then you may lose your deposit.
In most cases the bank will need to send a valuer to inspect your property before they convert your pre-approval into a formal approval. If you have a large deposit and are a very low risk borrower then they may decide that a valuation is not required.
Congratulations! You’re on the home straight now.
What type of ownership will you have?
For couples, you will need to decide on the type of ownership for the property. This will be stipulated on the documents that your conveyancer gives to the state government to transfer the property into your names.
There are three types of ownership:
- Sole owner: You are the only owner of the property.
- Joint tenants: Most married couples choose this option. You each own equal shares and if one owner passes away then the other automatically owns their share of the property, irrespective of any instructions in their will.
- Tenants in common: Most friends or business partners choose this option. Ownership does not need to be in equal shares. There is no right of survivorship which means that if an owner passes away then their share of the property is transferred as per their will.
You should discuss these options with your conveyancer or solicitor.
Time to sign the loan offer
After formal approval, it will take around a week for you to receive the loan offer documents from the bank. The loan offer is the contract between you and the bank with details such as the loan amount, interest rate and repayments.
You can go through your loan offer with your mortgage broker or you can seek independent legal advice by taking the contract to a solicitor to be reviewed.
Sometimes banks make errors in the loan offer which need to be fixed before the loan funds are advanced. The most common mistakes are the spelling of your names or the address of the property that you are buying. Less common mistakes include the interest rate discount or the fees applicable to your loan. If you notice a mistake then let your mortgage broker know right away.
Make sure that you sign and return the loan offer promptly to avoid delays in your settlement! Although it normally takes a few days for the bank to process your loan offer when it is returned, during busy periods it can take up to a couple of weeks.
You may need to include some additional documents with your loan offer such as evidence that you have insurance on the property. Please refer to the checklist in your loan offer for the full details and ensure everything is returned to the bank in one go.
If you send some of these documents separately then it is very likely that the bank will lose some of your documents and settlement will be delayed.
Do I need insurance?
Most lenders require the borrower to obtain a minimum amount of building insurance before going ahead with the settlement. They may also require you to include them on your policy as a mortgagee (lender).
The requirements are different depending on the type of property that you are buying:
- House: You need to obtain building insurance and provide evidence.
- Unit / townhouse: The strata corporation insures the building so no evidence is required.
- Vacant land: Insurance is not required.
If the bank requires evidence of your insurance then you can ask your insurer for a certificate of currency to be faxed to you. Make sure that you have insured your property for the minimum amount and included your lender on the policy before you request a certificate of currency.
Send your certificate of currency to the bank along with your loan offer so that your settlement isn’t delayed.
Apply for grants!
Are you eligible for the First Home Owners Grant (FHOG)?
There are a variety of different housing assistance programs available from each state. These come in the form of grants and stamp duty concessions.
The eligibility for assistance varies significantly between each state. Grants are normally available if you are buying a new property, building a new home or buying in a regional area. In some states they are available for all property types.
Don’t miss out on your grant! The eligibility requirements can be quite complex so enquire online or call 1300 889 743 to speak with one of our specialist mortgage brokers to find out which grants you are eligible for.
Final check of the property
In the days leading up to settlement you will need to complete your final checks to ensure that the property you agreed to buy is in the same condition as it was before.
This final inspection can be booked in with the real estate agent. You should ensure that it has not been damaged and all fixtures and fittings listed in the contract are intact. In some cases a sneaky seller may try to take the carpet with them when they move out!
Your conveyancer will also do a final title search to make sure that the certificate of title is ready to be transferred into your name.
There are only a few steps to go before you settle your first home! The settlement is when you become the owner of the property.
The settlement date is typically six weeks after you have paid your deposit. However you and the seller can negotiate a different settlement date if it is more suitable to you. We wouldn’t recommend a settlement period of less than four weeks as some banks may not be able to meet the deadline.
A few days before settlement your conveyancer will let you know if there is any shortfall in funds that you need to pay. You can then organise bank cheques for these amounts to be given to your conveyancer who will then take them to settlement.
On the settlement day there will be a meeting between conveyancers and banks acting for both you and the seller. The loan funds and any additional money you need to contribute will be handed over in return for the certificate of title and authority to release the current mortgage on the property.
Sound confusing? Don’t worry. You don’t even need to attend this meeting. Just let your conveyancer take care of it!
Your conveyancer will also authorise the real estate agent to release your deposit to the seller.
After settlement, you can pick up the keys to your new home. Congratulations!
Settlements can sometimes be delayed by a few days due to bank errors. For this reason we recommend that you have your current lease end a week after settlement and that you book in removalists for a couple of days after the proposed settlement date.
Help I'm lost
If you’re a first home buyer or investor, speak with one of our specialist mortgage brokers to find out the next step for you.
We’re here to guide you through the process and get you the most competitive loan for your situation. Enquire online or call us on 1300 889 743!