ORGANISING FINANCE AND MORTGAGE:
To save the heartache of finding a perfect place you can’t afford, stop at a bank or other lending institution to familiarise yourself with the concept of a mortgage. Pick up some brochures and understand the terms and conditions of the agreement you are about to sign.
Many new home buyers use a mortgage broker to obtain finance. Brokers will compare your application against the dozens of mortgage types on offer and provide you with a dollar amount each lender will offer you, depending on your financial circumstances. Be sure to ask how that loan’s interest rate compares to the others on offer; and the term of the loan – the difference between a 25 and 30-year home loan can be tens of thousands of dollars in interest.
Interest rates are at near record lows, and expected to rise over the next few years.
A fixed interest rate home loan allows you to fix an interest rate for a certain period, usually three to five years. After this time, your loan will revert to the fixed rate the bank is offering at the time – and you will be asked to lock in your loan for another period, or adopt the variable rate.
Once you have an unconditional loan approval, and enough of your own funds to cover stamp duty, mortgage fees, bank and valuation fees, you can comfortably start your house hunt.
HIT THE ROAD AND RESEARCH:
Depending on which side of the fence you sit on, hunting for a house can be the most exciting or most agonising part of the buying process.
Agents say smart buyers target the street and suburb they want to live in and work outwards if they can’t find something within their budget. It’s worth holding on to auction results, published in most newspapers on Sunday and Mondays, and calling local agents to ask for recent sale history, to keep abreast of the market.
“We like purchasers to be as forthcoming and unambiguous as possible in terms of their ‘wish list’, budget and any special aspects or features they require, so we can competently find them a property that matches their criteria,” says Luc Tomasino, director of Biggin & Scott Real Estate in Yarraville.
“There’s no point telling an agent you can only afford $400,000 when, in reality, you can afford up to $500,000, as you run the risk of an agent not showing you properties that you would possibly be interested in and which may be the exact home you want and can afford.”
“What we have found is once buyers start openly talking to us, we build up a relationship with them and they realise they can trust and work with us to achieve their ultimate goal.”
Once you’ve found a property you are interested in, you’ll need to obtain what is known in the industry as a Section 32. (Its full name is vendor statement to the purchaser of real estate pursuant to section 32 of the sale of land act 1962.) Agents call this lengthy document a “roadworthy” for the property. It includes:
• A copy of the title, which tells you the registered owner and any caveats (for example, current mortgages over the property) and includes a diagram location of the land;
• Which services are connected – for example, electricity, gas, water and telephone – and with which service provider;
• The most recent notice of land rates, drainage rates and any other charges (parks charge, for instance);
• Whether any planning issues may affect the property in years to come (for example, widening a road that may extend into your property);
• Easements, for example sewerage pipes that run through your property and may need to be accessed; and
• Covenants, for example, a restriction preventing anything from a second storey to a front fence on the land.
For older properties, be sure to ask the agent if you can get a pre-purchase inspection that assesses the structural condition of the property.
In most instances the vendor will allow this inspection and you can arrange a suitable time via the agent.
Building inspections range in price but a comprehensive one will cost upwards of $500.
MAKING AN OFFER:
Once you are satisfied with the property, the next step is to make an offer and negotiate a price (if it’s a private sale).
When receiving an offer for a property, most agents ask for a bank cheque of 10 per cent of the property’s value with the balance due at an agreed date, usually 30, 60, 90 or 120 days later.
For some vendors, depending on their financial situation, the settlement period can be a big factor in negotiations. A shorter settlement period will be attractive to vendors who have a mortgage over another property and risk paying hefty bridging finance charges on both properties until one is sold.
Once an offer has been accepted, you will need to sign a contract of sale of real estate. This document includes important information, namely:
• Details of a “cooling off period”. This allows a buyer to withdraw from the sale up to three business days after signing the contract. It is not applicable for properties bought at auction, or if a buyer gets the documents viewed by a legal representative.
• Particulars of sale – including the price to be paid for the property, the settlement term and a settlement date.
• Full details of the vendor’s real estate, and legal representative/s.
• What chattels, including floor coverings, light fittings and window furnishings, are included for sale with the property.
LEAD UP TO SETTLEMENT:
The role of the conveyancer or solicitor usually starts once they receive a signed copy of the contract from the agent.
“We liaise with the vendor’s lawyer, the vendor’s bank, the purchaser’s bank and the real estate agent, to co-ordinate the paperwork relating to the contract, mortgage and transfer of land,” says Lyn Williams, law clerk with Pietrzak Solicitors in the Melbourne CBD. “We also ensure, among other things, that caveats have been withdrawn where applicable and mortgages on the property have been discharged, so that the purchaser gets a clear title at settlement.
“There are dates after a contract has been signed when certain documentation has to be circulated between all parties involved.”
Failing to do these things could result in default under the contract and if such a default is not remedied, the contract risks being rescinded, she says.
Without doubt the biggest fee you’ll pay for buying a property is stamp duty, which is measured using a sliding scale depending on the home’s purchase price.
On a purchase of a $500,000 home where the buyer has a 10 per cent deposit, Victorian buyers will pay the Government just over $27,000. This is broken down in the following way:
• Stamp duty: $25,660
• Mortgage registration fee: $75
• Transfer fee: $1325
In most cases, if a bank lends you more than 80 per cent of the property’s value, you will be charged mortgage insurance, which can range from a few hundred dollars up to several thousand dollars.
Adjustments, including the portion of council rates and water rates that you must pay for the financial year, are also paid upon settlement.
If, for example, council rates on a property you bought are $2000 for the financial year, and you bought the property on April 1 (nine months into the year), you as the buyer will be obliged to pay for outgoings for the time you own the property (three months, equating to $500). The vendor will receive a refund (of $500).
It is up to you as the buyer to organise services such as gas, water, electricity, internet and phone.
Most service providers will charge an establishment fee once you sign with them.