What is the process of buying a house in Australia
Purchasing a property can be a daunting process, especially if it is your first home. Before you start making offers on a property it is important you know the steps involved with purchasing a property.
Below are the normal steps involved with purchasing a house or unit in NSW. Most of these steps can be applied to other states but it must be noted that each state and territory enforce different rules when it comes to real estate transactions. For example, some states do not enforce a cooling-off period and may instead offer a “subject to finance” clause in the standard contract.
When it comes to the point where you have found a house or unit you are interested in purchasing and you have obtained a copy of the contract of sale you should always seek legal advice before signing the contract.
Step One – Find out how much you can borrow & obtain a conditional loan approval
It is important that you find out what your borrowing capacity is before you go searching for a property. This will help you decide which properties you should inspect. You should also complete a budget to ascertain how much you can afford in repayments. The amount that the bank says it will lend you may result in a repayment that is greater than the amount you can afford. You should never overextend your financial capabilities.
Simply call us on 1300 66 12 11 to get a no-cost and no-obligation assessment of your maximum borrowing capacity. Alternatively, enter your details in the form on the right side of this page and you will be contacted to discuss.
Step Two – Inspect properties in your price range
Once you know your borrowing capacity you can then search for and inspect properties in your price range. Obviously, when inspecting properties it is important that you look for any obvious issues with the property. Also, to maximise capital growth you should research the surrounding area. Schools, shops and public transport nearby will make the property more attractive to future buyers and should therefore ensure that you experience good capital growth. Check out the Herron Todd White Month in Review report for some up-to-date research on the various property markets around Australia.
Step Three – Obtain the contract of sale for the property you are interested in purchasing
Once you have found a house or unit that you are interested in purchasing you should ask the real estate agent for a copy of the contract of sale. If you haven’t already found a solicitor or conveyancer you should, at this point find one. You should then take the contract of sale to the conveyancer so it can be checked for any irregularities.
You may find that some agents will encourage you to make an offer and sign the contract immediately, especially in a hot property market. It is not uncommon for purchasers to sign a contract of sale before having their conveyancer or solicitor review it. If you decide to sign the contract to secure the property it is advisable to ensure you are not waiving your rights to a cooling-off period first.
Step Four – Make an offer if the property is for sale by private treaty
If you are purchasing at auction please go to step 5. Once the contract of sale has been given the thumbs up by your legal representative you can then make an offer. As mentioned in step 4 it is not uncommon for purchasers to have already made an offer and agreed on a price before the contract of sale is reviewed by their solicitor.
The offer can be made verbally or in writing and is conveyed to the real estate agent. The real estate agent is compelled by law to pass the offer on to the vendor. Prior to making an offer, it is wise to do some research on the property and recent sales in the area.
To assist with your research we are able to provide a free Core Logic Property Profile Report valued at $40. This report will usually provide an estimate of the value of the property and will provide some examples of similar properties that have sold in the area recently. Call us on 1300 66 12 11 or complete the form on the right of this page to request this report. We just need the address of the property and your email address to send it to you.
Once negotiations on the purchase price are complete, and you and the vendor have come to an agreement on the price, in NSW you have available two courses of action you may take.
1. Agree on a price without signing a contract of sale
You can leave a holding deposit of about 0.25% of the purchase price (or an amount agreed with the agent) and not sign the contract. This is a verbal agreement and you run the risk of being gazumped (real estate agents can legally sell the property to a higher bidder if you haven’t signed a binding contract).
The upside to this course of action is that you can pull out of the sale and get your holding deposit back if you find something adverse during your inspections, or if for some reason your finance falls through. After verbally agreeing to the purchase you should then carry out step five. If everything is okay with step five you can then safely sign the contract of sale and leave a 10% deposit.
2. Agree on a price and sign a contract of sale with a cooling off period
Sign and exchange contracts immediately with a 5 working day cooling off period. Under this method, you will still need to leave a deposit of 0.25% of the purchase price but this amount is non-refundable if you decide to not go ahead with the transaction. The upside is that once contracts are exchanged the property is secured and cannot be sold to any other purchasers.
During the 5-day cooling off period, you will need to complete everything outlined in step five, including pest and building inspections and attaining formal loan approval. Achieving all of this in five days is usually difficult.
The reason for this is that the bank valuer and the building and pest inspectors need to organise access to the property. Delays in getting this access are sometimes experienced, especially when the house or unit is rented out (as opposed to being owner-occupied). For this reason, it is recommended that you negotiate a 10-day cooling-off period before signing the contract.
The course of action you should take should be decided after discussions with your legal representative. It is normally the case nowadays that you will be required to sign the contract and enter into a cooling-off period to secure a property.
Step Five – Organise formal finance approval, inspections of property and searches
After the purchase price has been agreed upon (in the case of sale by private treaty) you should then arrange formal finance approval, carry out inspections and have your legal representative conduct searches.
1. Formal loan approval – To arrange formal loan approval you should immediately email the front page of the contract to the broker or lender that arranged your conditional approval. They will then organise a valuation if applicable. If the valuation is satisfactory to the lender and the mortgage insurer (if applicable) formal approval will usually be granted.
2. Pest & building inspections – You or your solicitor/conveyancer should immediately arrange a pest and/or building inspection. Some organisations can conduct both types of inspections. Although a pest & building inspection may cost you up to $600 it is worth it when you consider you are purchasing real estate that could possibly be costing you hundreds of thousands of dollars. It will give you peace of mind about your purchase.
3. Searches – your conveyancer conducts these. They include title searches and strata searches (if you are purchasing in a strata-titled unit complex).
If you are purchasing by way of auction, pest & building inspections and the searches should be carried out before bidding. The formal loan approval is usually obtained after you have bid successfully, as the purchase price is not yet known.
In the case of purchasing by way of private treaty, once everything in step five has been completed you can then safely proceed with purchasing the property. This is when you will be required to pay a 10% deposit, less the original holding deposit. On occasion, the purchase can proceed with a lesser deposit such as 5% of the purchase price if it is agreed upon by the vendor.
If purchasing by way of auction please proceed to step six. If purchasing by way of private treaty please proceed to step seven.
Step Six – Bid at auction
If purchasing at auction the obvious next step is to attend and make a bid. It is important that you don’t let emotions take over at an auction and end up spending more than you intended. The process of buying a house is stressful enough as it is which is why many potential buyers use a buyer’s agent to make the bids on their behalf. This way emotions don’t get in the way. Prior to attending an auction you should set a maximum spending limit (which should not exceed the lender pre-approved limit) and walk away if bidding exceeds that figure.
It is also important to ensure you do your research on the property and area when setting the limit on the purchase price. Once again, to assist with your research we are able to provide a free Core Logic Property Profile Report valued at $43. Call us on 1300 66 12 11 or complete the form at the bottom of this page to request this report. We just need the address of the property and your email address to send it to you.
If you are successful at auction you will need to supply a 10% deposit (or less if agreed pre-auction) and sign the contract of sale. There is no cooling-off period available for a house or unit purchased at auction. You will then need to arrange formal finance approval using the method described in step five.
Step Seven – Sign the loan letter of offer and mortgage documents
Usually, within a week of formal finance approval, you will receive from your lender a loan contract and mortgage documents. You should read these documents very carefully before signing and returning them to the lender. Most lenders issue these documents electronically these days instead of mailed as they were in the past.
The main things to look out for are the loan amount, interest rate, fees and repayments. If you find any errors in the documentation you should immediately contact the person or organisation that arranged the finance.
You also have the option of seeking legal advice from your conveyancer or solicitor before signing and returning this documentation. To avoid any delays with settlement you should carry out this step ASAP.
Step Eight – The lender checks signed mortgage documents and certify your loan as ready to settle
Once the lender, or their legal representative, receives your signed mortgage documents they will review them and if all is in order they will then certify your loan as ready to settle. It is at this stage they will advise your solicitor or conveyancer that a settlement date can be booked.
Some common missing items that prevent loans from being certified as ready to settle immediately are:
- Building insurance policy. Lenders require the building you have purchased to be insured with the lender noted as an interested party. The only exception to this is for units. Some lenders don’t require the building insurance policy for strata-titled units. Units are insured by the strata corporation.
- Copy of the transfer. This is prepared by your solicitor or conveyancer and will generally be sent directly to the lender by them. In most states, this is done via the electronic conveyancing system, PEXA.
- Missing signatures. If one of the documents is missing a signature the lender will require it to be signed.
Step Nine – Settlement
Settlement is when the process of buying a house comes to an end. The date of the settlement is the date that you take legal ownership of the house or unit. In NSW this usually takes place 6 weeks after the date of the contract (although this can be altered with agreement by the vendor and purchaser).
In the weeks prior to the settlement date, your conveyancer or solicitor will organise a Transfer of Land document, either in paper form or electronically depending on the state the property is located. This document will be handed to your chosen lender at settlement. It will then be registered at the State/Territory Titles office on your behalf in order to change the ownership of the property.
Once your conveyancer is satisfied that everything is okay to proceed settlement will be booked. Your solicitor will contact the bank, the vendor’s solicitor and any other interested parties to arrange the date, time and place of settlement. It is at this time when the funds you have borrowed, plus any additional contributions being made from your savings, are transferred to the vendor, as per the vendor’s solicitors’ instructions.
Your solicitor or conveyancer will usually inform you in the week leading up to the settlement of any further contributions required from you for the shortfall and costs such as stamp duty. Any shortfall amounts generally need to be deposited to an account in your name held with your lender or into your solicitor’s trust account.
Once all of this is complete you will receive the keys from the real estate agent and then you can move in or rent it out!
Contact us at 1300 66 12 11 if you have any questions about the process or if you require assistance with financing your home purchase. We understand the process of buying a house can be stressful and can guide you through the minefield using our many years of experience.