Make buying a property stress-free
We’ve helped thousands of Australians buy a home.
For most people, it’s one of the best decisions they will ever make; for others, it can turn out to be a disaster.
Avoid the big mistakes and protect yourself by following some simple rules.
The #1 rule
Don’t commit to buy a property unless you have formal approval from a lender.
If you don’t have formal approval, you’re taking a risk and, as a mortgage broker, there’s not much we can do to help you if later it turns out that you aren’t eligible for a loan.
If you decide to break this rule then you do so at your own risk.
Call us on 1300 889 743 or complete our free assessment form so we can help you get a pre-approval before you commit to a purchase.
What happens if you can’t complete the purchase?
This can vary depending on the state that you’re in but, as a general rule, if you sign a contract and can’t complete the purchase, you’re going to lose your deposit.
The vendor may also be able to sue you to recover any losses they have made such as the difference between the price you agreed on and the price they are able to sell the property for later.
The purchaser who can act the fastest to buy a property is usually the winner.
If you’re pre-approved then you’re at a significant advantage over other buyers.
A pre-approval means a lender has assessed your situation so it’s a good indication that they’ll issue a formal approval later when you find a property.
Some lenders only do ‘system approvals’ where a human doesn’t actually assess your loan.
Typically, these are instant pre-approvals and they aren’t worth the paper they’re written on unless you’re in a strong financial position.
Tip: if you have a system pre-approval you must have a cooling off period to make sure you’re protected.
The lender can reject the property that you buy
A pre-approval is about the lender accepting you as a borrower but they also need to accept the property you’re buying.
You can reduce your risk by emailing your mortgage broker with a link to the property on a real estate website.
Ultimately, it’s the lender’s decision and if you commit to buy a property you should have a cooling off period to protect yourself.
Buying at auction is risky
If you win an auction, there is no cooling off period so it’s actually a much bigger risk than most people realise.
You’re committing to buy a property yet the lender can’t issue a formal approval before the auction so you’re forced to take the risk.
We only recommend that customers buy at auction if they are in a very strong financial position with a deposit for more than 20% of the property value.
Auctions are incredibly risky for first home buyers with a 5% deposit: if anything goes wrong there’s fewer lenders to choose from that can help.
In some parts of Australia such as Melbourne or the affluent suburbs of Sydney, almost all properties are sold at auction.
We recommend that you try making an offer prior to auction and at the very least have a pre-approval before you buy.
Cooling off period vs a finance clause
A cooling off period usually allows a purchaser to withdraw from the contract within a certain period of time for any reason.
On the other hand, a finance clause only allows you to withdraw from the purchase if you’re unable to get a loan.
Each state of Australia has their preferred way of working but you can always ask for a cooling off period rather than having to adhere to a finance clause.
A cooling off period is a much better way to protect yourself because a finance clause doesn’t protect you in all instances.
For example, a finance clause won’t work if:
- The valuation comes in lower than the purchase price but you still have enough funds to complete the purchase.
- You change your mind and don’t want to buy the property.
- The lender approves your loan at a higher rate than you’d like.
In some states, a cooling-off period is mandatory, unless a buyer agrees to waive it.
We recommend that you ask for a two-week cooling off period to allow for any delays caused by the valuation and the bank.
What if the cooling off period is expiring?
In New South Wales, it’s common to have a cooling off period of just five days.
The rest of Australia usually allows two weeks!
Five days is plenty of time if you’ve got a simple loan application and no valuation is required but two weeks is needed if your situation is complex.
It’s quite common for the cooling off period to be coming to an end before the formal approval has been issued.
In these cases, you can request an extension via your conveyancer.
Technically, it’s the job of the conveyancer to monitor the cooling off period and to extend the cooling off period if your finance isn’t yet ready but you should take responsibility for this yourself as ultimately it’s your deposit that is at risk.
Can’t the lender just approve my loan faster?
Yes and no.
We can lodge a request to escalate a loan for a quick approval and with some lenders this works and with others it does nothing.
Lenders aren’t reliable and most loan applications are urgent!
That’s why it’s much easier and safer to extend the cooling off period than to rely on the lender to move faster.
The main delay for getting a loan approved is not having all the required documents ready for your application.
If you provide everything to your mortgage broker immediately then they can get you a faster approval.
Lenders report that on average, 60% of loan applications cannot be approved because the borrower or broker have not provided the required documents.
Buying or building a new property
New properties often have valuations that come in below the purchase price.
This poses a big risk to first home buyers as the lender may reduce the maximum amount they’ll lend you, leaving you unable to complete the purchase.
Do more homework before buying a new property and look for recent sales outside of the development you are buying in to make sure the price is fair.
If you’re building a home, be aware that few lenders can finance owner builders and nobody can finance a ‘split contract’.
A split contract isn’t referring to having one contract for the land and one for construction: that’s normal.
It’s referring to a type of building contract.
Check with your builder to be sure they know what it is.
Buying off the plan
Buying off the plan is the riskiest type of purchase.
It’s really a speculative investment, yet most people see it as no different to buying a standard home.
The problem is that you’re committing to buy a property but nobody is committing to give you a loan!
If you have children, change careers, the property market slumps or banks change their lending criteria, you may be unable to get a loan at the time of settlement.
Most people who buy off the plan are doing so because they get some kind of first home benefit such as waived stamp duty or a first home owners grant (FHOG).
You can get the same benefit by buying a new property that is complete so why take the risk?
Since it’s a speculative investment, buying off the plan should only be considered by people in a very strong financial position with more than a 20% deposit.
What if settlement is delayed?
Settlement delays are common and they can be stressful for you as a home buyer.
The most common cause is because the lender isn’t ready to advance the funds due to delays with the loan offer documents or because your loan is complex.
You can prevent settlement delays by asking for two weeks more to settle.
Six weeks is most common in Australia but we find that eight weeks will give you a stress-free experience.
You can also negotiate on the rate of penalty interest so that it’s only 5%.
That way if there are delays this doesn’t cost you a fortune.
If you miss the settlement date, the consequences can vary depending on the state that you’re in.
In some states, the vendor can immediately cancel the contract and keep your deposit.
In others, they will issue you with a notice to complete which gives you an additional 14 days to settle but you’ll be charged penalty interest until you complete.
Most vendors work with the buyer in an amicable way to complete the purchase.
However, you can’t rely on them being nice!
You need to take a delayed settlement very seriously to avoid losing your deposit.
Don’t go overseas
If you’re an Australian expat or foreign investor then you should allow an extra two weeks to settle your purchase and put this into the contract of sale.
However, it’s common for Australians to buy a property and then go on an overseas trip while waiting for settlement!
The problem is that if you’re overseas, documents may need to be mailed back and forth which will delay the process.
We recommend that you don’t go overseas during the process.
If you must then ask for eight weeks to settle rather than the normal six.
Your conveyancer is your legal expert
This article is generic and covers all states of Australia.
However your contract of sale may be different to the norm or your state’s legislation may change.
It’s important that you seek advice from your conveyancer, solicitor or settlement agent as they can give you advice on the contract and the relevant legislation for your state.
We’re mortgage brokers and our focus is on getting you a suitable mortgage so check out our list of recommended conveyancers for your states.
If you need help with applying for a home loan, call us on 1300 889 743 or fill in our online enquiry form and find out how we can help.