From woe to go: the process of buying your first home
The journey of buying your first home can be a daunting one so it can be helpful to know what happens when, who does what and what you need look out for. We’ve pulled together this step by step guide to help you be a first time property pro.
Step 1: Get your finances in order
Before you even start looking at properties you should have a very clear idea how much you can afford to borrow and live comfortably. You should have your deposit saved (ideally 20%) and be fully in control of your monthly household budget. To see whether you’re really ready for the financial commitment of home ownership read our article on the 5 tests you should pass before taking out your first mortgage.
Step 2: Shop around for the best home loan deal
Just because you are a first time buyer, it doesn’t mean that you shouldn’t negotiate on your home loan. Shop around and compare home loans at Mozo’s home loan hub to see which lenders are offering the best rates and loan features that will suit you. If negotiating isn’t your strength, think about getting help from a mortgage broker or home loan negotiator. Mozo has a free expert help service to help you get better deal on your home loan. Our experts deal with the banks everyday and know what discounts first time buyers can and should get.
Step 3: Loan pre-approval
Once you’ve chosen a lender, it is a good idea to proceed with getting loan pre-approval. Most banks will give you conditional pre-approval for a home loan up to a certain limit, based on the information you provide confirming your income and commitments. Conditional pre-approval generally lasts three months so if you have not found a property after this time you’ll need to reapply.
Pre-approval helps you to ‘house shop’ with more confidence and it can mean that when the time comes to put in an offer you are able to act fast.
Step 4: Find a good solicitor or conveyancer
Ask friends and family who have bought recently for a recommendation. Both solicitors and licensed conveyancers are qualified to undertake the legal work involved in buying property so the choice of who you decide to use is up to you.
Your solicitor or conveyancer ensures that when you buy the property you will be the rightful owner. They will ensure that your ownership rights are not restricted by caveats on the title, easements, or local government rules, and that any mortgage held over the property is discharged before you take possession.
They will also guide you through the contract negotiation process.
Step 5: Enter the market
If you haven’t already begun, now it is time to decide on the area you want to put down your roots in and plan your attack for securing your first home. Unless you are buying off the plan, you’ll be spending a lot of time on the internet looking at property listings and your weekends will be spent viewing open houses. It’s also a good idea to attend property auctions to get a feel for the types of properties and the sale prices in your area.
Step 6: You find the ‘one’ - it’s time to make an offer
You find the house, apartment, terrace, mansion of your dreams and you’re ready to make an offer.
There are two main ways that properties are sold in Australia and depending on what method the seller is using there are different requirements and processes to follow. The two options are buying at auction and or private treaty.
Regardless of which method you will be buying under the real estate agent representing the seller will need to give you a copy of the “contract of sale”, which outlines the terms of the sale and details of the property. Get your solicitor or conveyancer to look over the contract of sale before you bid or make an offer.
Buying at auction:
If the property you want is up for auction, it is possible for you to make a pre-auction offer. The vendor does not have to accept pre auction bids, and even when the vendor is considering your offer, the property is ‘still on the market’ so its possible that another party could gazump you with a better offer.
If you have to proceed to auction day, you will need to ensure you have done all of your due diligence prior to the auction as there is no cooling off period. This means your solicitor should have reviewed the contract, you have your finances in order and your deposit ready (at auctions a 10% deposit is required on the day) and you’ve done the necessary building and pest inspections.
If you are the highest bid at the fall of the hammer after the property was declared ‘on the market’ you will purchase the property.
Buying via private treaty:
This when a property is put on the market with a specific price and you negotiate with the seller usually via the real estate agent. Generally you will put in a written offer and you and the vendor may go back and forth until you reach an agreement and your offer is accepted.
Step 7: Contracts are exchanged
Once your offer is accepted by the vendor you’ll exchange contracts. Your solicitor or conveyancer will support you through this process. The final contract will include:
- settlement date
- sewer and drainage diagram
- zoning restrictions
- survey (optional)
- special conditions: this will be things like subject to finance approval, building inspection or pest inspection. Also some buyers negotiate longer or shorter settlement periods. Your solicitor will discuss with you your options and include any special conditions on your behalf.
There will be two identical versions of the contract, one which you to the buyer signs and a duplicate that the seller signs. You then ‘exchange’ the contracts so that you keep the copy that the seller signs and vice versa.
Step 8: Deposit is paid
The amount of deposit can vary but the standard amount is 10% of the purchase price at exchange. If you bought your property at auction this will be required on the day. The deposit will be held in a trust account (generally with the seller’s real estate agent) until settlement.
Settlement is generally 4 - 6 weeks from the date of exchange, unless you have specifically negotiated a shorter or longer settlement period.
Step 9: Organise insurance
It is recommended that as soon as you exchange contracts you get your building insurance in place. Generally you can get a cover note for the period up until the settlement date and the policy will begin on settlement along with your contents insurance. If you are buying an apartment you will need to arrange a ‘Certificate of Currency’ from the body corporate’s insurer to make sure the property is adequately covered.
Step 10: Conduct due diligence
If you have a cooling off period in your contract (the length of this will vary state to state) or special conditions that were agreed to now is the time to conduct your final due diligence. This would be such things as pest inspections, building inspections and finance approval.
If you have a conditional offer with your home loan lender, now is also the time to get final unconditional approval of your home loan. If you are eligible for any first home owners grant your bank will usually organise this for you and have it ready for you at settlement.
The application process will be slightly different with each lender but generally this will include the following steps:
1. submit your final application and supporting documents including things like recent pay slips, savings and bank account statements, signed application form.
2. lender completes employment check and property valuation
3. full application is reviewed by lender
4. loan gets approved
5. loan documents get sent to you to sign
6. signed documents returned to bank
7. loan gets certified ready for settlement
Step 11: Pre-settlement inspection
Before you take possession of the property you are generally entitled to a final inspection of the property. This allows you to confirm that nothing has been damaged or changed since you agreed to buy the property, beyond general wear and tear.
Step 12: Settlement
Your solicitor will arrange settlement with the vendor’s solicitor and liaise with your lender to organise for the remaining funds to be available on the time and day of settlement.
On settlement day, your solicitor will contact you to let you know that settlement has taken place. They will also send you a Statement of Adjustment to show you how the funds have been paid to all parties.
Congratulations, you’ve bought your first property. It’s now time to pick up your new keys and pop the champagne.