Its My Home : 2017
9 8 IT’S MY HOME 5MAKING AN OFFER AND SECURING FORMAL LOAN APPROVAL Once the inspections have been completed and you are happy to proceed, it’s a good idea to contact your lender or broker to update them on the situation. The next step depends on whether the property is being sold at auction or by private treaty, which is a sale directly through a real estate agent or owner. Private treaty - All of your research will assist you when negotiating the purchase price, however you probably don’t want to be too inflexible. The last thing you want is to lose the property to someone else for an amount that you would have been happy to pay. Once your offer has been accepted, a holding deposit of approximately 0.25 per cent needs to be paid. There will be a length of time known as the ‘cooling off period’ which is a set number of business days that is specified in the contract within which you can walk away from the agreement to purchase the property. Typically the cooling off period will be 5-10 business days, although the availability and duration of these periods vary by state. You may also be asked to waive your right to a cooling off period, which is often also the case under auction purchase conditions. If you decide not to proceed, you will typically have to pay the vendor a termination fee, which is usually around 0.25 per cent of the purchase price. Any holding deposit you have paid above this is typically refunded. If the cooling off period has expired, you will generally not be entitled to any refund of the holding deposit. Auction - If you are buying at auction you need to ensure you have a pre- approval in place, and that all of the legal work and inspections have been completed prior to the auction. If your bid is successful you are obliged to go through with the purchase as there is no cooling off period. So make sure you really want the property before you start bidding and, most importantly, that you don’t exceed your maximum spending limit. Speak to your solicitor regarding the amount of the contract deposit required to be paid when contracts are exchanged. This can often be reduced to five per cent, instead of the typical 10 per cent however this needs to be agreed with the vendor or their solicitor prior to auction. There are a number of things to consider when it comes to finalising the details of your home loan. One important decision is whether you choose a variable interest rate loan, in which the interest charges and your regular repayments may go up and down, or a fixed rate loan which locks in your interest charges and regular repayments for a set period of time. Both types of loans have their pros and cons and some borrowers hedge their bets by choosing a combination of fixed and variable rate loans. It’s a good idea to discuss your personal circumstances with your lender, broker or financial adviser to ensure that the loan is configured in a way that best suits your needs. Don’t forget to ask about any additional benefits – most lenders will provide home loan customers with additional benefits such a fee-free transaction account. There are other options available if you don’t have a 20 per cent deposit. Lenders Mortgage Insurance (LMI) is one way to buy a home with a deposit as low as five per cent. Rather than having to save a $100,000 deposit on a $500,000 property, you may be able to purchase with a deposit of $25,000. This means you can get into your own home sooner, begin paying off your mortgage and potentially start building equity. LMI has a one-off premium which the lender will pass on to you to pay. The premium can usually be added, or capitalised on to your loan with your repayments adjusted accordingly. To calculate the approximate cost of LMI, you can use the LMI Premium Estimator on the Genworth website genworth.com.au/premiumestimator 4INSPECTIONS Once you have found the home you want to purchase and before you make an offer, you will want to arrange the necessary inspections. You should consider a: n building inspection (to check for structural damage) – can vary depending on location $400 - $1000 n pest inspection – approximately $200 n strata title inspection (if you are buying a unit or townhouse under strata laws) – costs may vary from $250 - $500. You should also consider checking with local council and state government about zoning issues and future property developments that may affect your home. Your solicitor or conveyancer should advise you on what inspections are recommended for the type of property you are buying. 6ARRANGING THE CONTRACT DEPOSIT If you are paying the contract deposit from your own funds, you can generally use a personal cheque or a bank cheque. If part of the contract deposit is coming from your home loan (eg you are using LMI and have less than the 10 per cent contract deposit usually required when contracts are signed), you may need to use a deposit guarantee (sometimes called a deposit bond). This is a substitute for the cash contract deposit and is a guarantee issued by an insurance company to pay the contract deposit to the vendor should you default under the terms of the contract or fail to proceed with the purchase. Deposit guarantees can be organised at the same time as your home loan so speak to your lender or broker who will help you to arrange this. 7CONTRACTSAND LEGAL WORK Do your research and speak to several real estate agents to find a reputable conveyancer or solicitor that meets your needs. Your, and the vendor’s, conveyancer or solicitor will check the documentation and begin to draw up the contract for the property transfer. Ask your solicitor or conveyancer to explain the contract so that you understand its contents before signing. DIY conveyancing kits are available, but most people leave it to the experts and use a solicitor or a conveyancer to do the work for them as there is a lot at risk. Conveyancers will have completed hundreds of property transactions and know the hidden traps to watch out for, like finding out that someone has planning permission to build a 10-storey office block next door! The contract will contain a settlement period which is the length of time before you take legal ownership of the property. This can be negotiated, but will need to be agreed to by the vendor prior to the auction or signing of contracts. Many lenders will require home insurance to be taken out from the time contracts are signed. Even if your lender doesn’t require it, it can be a good idea to take out home insurance at this time to help safeguard your interest in the property. Once all questions have been answered, your conveyancer or solicitor will usually set a date and time for you and the vendor to sign contracts and to pay your contract deposit. The contract deposit is usually placed into a trust account held by the real estate agent until settlement. 8SETTLEMENT Settlement is usually four to six weeks from when contracts are exchanged. This is the date you take legal ownership of your new home. Your solicitor or conveyancer will arrange a time and place for settlement to occur with the vendor’s solicitor and any other interested parties, such as your lender. The balance of the purchase price will need to be paid on the day of settlement. Your solicitor or conveyancer will arrange this with your lender who will take the balance of funds to settlement. Generally, the contract of sale will require the vendor to deliver the property to you in the same condition it was in on the day of sale, except for fair wear and tear. It’s a good idea to ensure your contract allows you to conduct a final inspection just before settlement. You can arrange this inspection with the real estate agent. If anything is not working or has been damaged, discuss it with the real estate agent and your solicitor or conveyancer prior to settlement. Once settlement has occurred, the vendor’s solicitors will contact the real estate agent who sold you the property and advise them to give you the keys. Your solicitor or conveyancer will also contact you and confirm settlement has taken place. Time to celebrate! INSPECTIONS CAN IDENTIFY ANY CONCERNS BEFORE YOU BUY LMI CAN ASSIST YOU TO PURCHASE A HOME WITH JUST A FIVE PER CENT DEPOSIT Pictures:iStockbyGettyImages.