6 key steps to buying a property
1. CONSIDER STARTING THE PROCESS OF APPLYING FOR FINANCE
If you are planning on borrowing money to buy a property then before you start looking at properties you may want to begin organising your finance. You can get things started by speaking to a lender or mortgage broker and consider applying for ‘pre-approval’.
Finance pre-approval is when a lender indicates that they may be willing to lend you a certain amount of money subject to certain conditions. Pre-approval can give you an indication about how much you could borrow from a particular lender but is not an offer of a loan.
One benefit of having finance pre-approval is knowing how much you can potentially borrow and understanding what the repayments would be for this amount. It can also make the process of unconditional loan approval faster when you do find a property to purchase.
Once you have found a property and had an offer accepted then you can formally make the loan application. The lending body will value the property to determine whether the property is adequate security for the amount of the loan. The lending body lends a percentage of the valuation of a property, not a percentage of the purchase price.
The lending body will then issue unconditional written loan approval which indicates that a lender has taken all of your financial information as well as the valuation of the property in to account and is willing to move ahead with a home loan for a specific amount for a specific property.
Another important aspect to consider with the monetary side of buying a property is how you are going to pay the deposit. The standard deposit is 10% of the purchase price, it is sometimes possible to negotiate payment of a 5% deposit or payment by way of deposit bond if you do not have the cash but that is subject to agreement by the vendor.
Once you have considered your financial position of how much you can potentially borrow and how you will pay the deposit it is time to start looking at properties.
2. AFTER YOU HAVE FOUND THE RIGHT PROPERTY
Once you have found a property you want to buy you can engage a solicitor to review the contract and act on your behalf in the conveyancing process either before you make an offer, or after you have had an offer accepted. Whichever way you decide to proceed it is important that you obtain legal advice before you sign the contract.
The conveyancing process involves the transfer of ownership to you and making sure that you get a good title to the property. Your solicitor will review the contract of sale and provide you with advice, they will also negotiate any amendments to the contract where necessary. Once any amendments have been agreed you can then sign the contract which will be held by your solicitor.
Once you have had your offer accepted then you should consider arranging for a pest and building inspection to be conducted. This can help identify any structural or pest problems with the building. If you are buying a strata building such as a unit then you should consider obtaining a strata report which contains relevant information about the cost of levies, insurances and the management committee.
If you are buying the property with someone else, you will need to decide the type of ownership you will have. There are two types of shared ownership:
o Joint Tenants, where the property is held by two or more people in equal shares. If one dies, his/ her share goes to the survivor; and
o Tenants in Common, where the property is held by two or more people in equal or unequal shares. If one dies, his/her share goes to a person named in his/her will.
It is at this time that you will also need to apply for formal loan approval, as outlined above the lending body will value the property and if everything is in order they will provide unconditional written finance approval.
When all the reports are in order and the loan is formally approved and you are satisfied with the contract then you will need to make payment of the deposit, this will usually be paid in to the real estate agent’s trust account. Your solicitor will then organise the exchange of contracts, exchange involves the purchaser signed contract being sent to the vendor’s solicitor who will date the contracts and then return the vendor signed contract to your solicitor – this completes the process of exchange.
After the exchange of contracts, there is provision in the Contract for a five day cooling-off period. This means you can change your mind and cancel the contract. If you decide not to proceed during the five day cooling-off period you will forfeit 0.25% of the purchase price to the seller.
Alternatively, the vendor may request that you waive the cooling off period, if you agree then there is no cooling-off period if you instruct your solicitor to sign a Section 66W Certificate which waives your cooling-off rights and the contract is binding from the date of exchange.
The period from exchange of Contracts to settlement is usually four to six weeks but it varies depending on agreement between the parties. During this time enquiries and searches are made and documents are prepared by your solicitor to transfer the title of the property in to your name.
All relevant enquiries relating to your land are made, including electricity, water and local government authorities. This will show council and water rates, arrears and if the land is subject to a land tax charge in the hands of the vendor.
Your lender will prepare the mortgage document which sets out the terms and conditions of the loan so you know exactly what you are contracted to pay: how, when and for how long. It is also generally a requirement that you arrange insurance for your property to commence from the settlement date and provide a copy of the insurance to your lender.
Requisitions on title are sent to the vendor’s representative for completion to obtain information from the seller which may not have been previously disclosed or discovered during inspection of the property.
Close to settlement, a settlement statement is sent to the vendor. This details the final amount owing, including the adjustments for rates as at the date of settlement.
Settlement is the completion of the transaction. A date is arranged by both parties and your lender for settlement.
When buying or selling property traditionally the settlement of the property has taken place by way of ‘paper settlement’ whereby the parties involved in the transaction attend a set settlement time and exchange paper documents and cheques and then certain documents have to be physically lodged with NSW Land Registry Service.
In New South Wales and other states across Australia, there is a shift away from paper settlement to an electronic conveyancing. The term ‘electronic conveyancing’ refers to a conveyancing transaction where practitioners have elected to settle electronically through the electronic platform provided by Property Exchange Australia Limited (PEXA). The representatives of the parties and their financiers participate in an electronic workspace.
At the time of settlement the workspace is locked automatically in advance of settlement if everything is ready. This triggers title verification and movement of the source funds into a holding account. Settlement occurs as scheduled and title documents are lodged and registered, and the settlement funds disbursed. The settlement process is automatic and completed in about 15 to 30 minutes.
There are important security features built in to PEXA as well electronic conveyancing rules that practitioners must follow.
6. POST SETTLEMENT
Congratulations, after settlement the property is yours to enjoy! You will be notified that settlement is complete and you can pick up the keys from the agent.
Buying a property is an exciting time and Shaw & Bunner Legal will guide you through each stage of the process – it is our goal to make your experience as stress free as possible.
For more information about how we can assist you please contact us on 4046 1805.