10 Steps to Buying your First Home for a Complete Beginner

1. The Pre-Approval Process

The Pre-Approval process is quite straight forward. You simply get in touch with a bank or one of the many mortgage brokers out there and they will let you know everything you need to do to secure your pre-approval. Some are listed below:

The bank will then assess your financial situation. This will then give you an estimate of how much you can afford to purchase.

The pre-approval will typicall take into consideration your situation, including any government grants/deposits/gifts/garuntor loans, then based on your income and job history, credit rating and other lending critera, the bank will provide you with a dollar figure that they are comfortable in lending to you.

It is very important to note that there may also be other costs that the bank will not include as part of this number such as, rates for the land whilst the house is being built, legal costs, pest and building inspections, water connections, land improvements. It would always be recommended to include an additional $sum in your personal account to act as a buffer to cover any additional costs.

2. Find the Home You Want

As soon as you are confident in the pre-approval figure, you should commence the search to find your new home or investment.

If you are buying an already established home you should inspect everything, light switches, plumbing, floorboards, walls etc. as this builders inspection will typically forget some items.

3. Make an Offer

If you are happy that you have found the house that you want to buy it is time to make an offer. This is typically made in a couple of different forms. Real-Estate agents are required by law to present all offer’s to the seller.

Verbal Offer: Make a verbal offer price over the phone to the real estate agent. The agent will then be required to present this to the seller. The seller will then verbally accept or otherwise. This should also include the general terms i.e finance period, building and pest, etc.

Contract Offer: Make an offer in the form of a contract. This is typically not recommended without legal advice, however it is possible to request a template contract from the agent and fill in with particulars and make the offer in the form of a contract.

Written Offer: Similiar to the above, however is a basic email outlining the price and general terms of conditions that you would like to offer.

4. Contract Stage

Upon approval of one of the forms of offer, the seller will either accept, negotiate or deny.If the offer is accepted it now moves to contract stage. The Real-Estate Agent will reach out and provide you with a contract.

Now is probably the time to engage a solicitor for assistance (typically ~$1,000). Although not a requirement now it is strongly recommended.

The solicitor will work with you to fill in the contract and add any special conditions into the standard contract. Special conditions, should typically always include, subject to building and pest, finance, pool inspections, etc. you can pretty much list anything that you want to list down as a condition.

Subject to finance is to protect you – in case you can’t get an official approval from the bank for any reason, this clause will help you walk away risk free without any penalty. Same thing for subject to pest and building inspection. If the house is not of good condition and the building inspection presents that, you can walk away risk free.

Once completed this contract will then be provided to the seller for countersigning. The Contract is not valid until countersigned by the selling party.

It is very important to write down the date that the contract goes unconditional, this will be the timeline around your last special conditions i.e (30 days for finance, or 14days for building and pest) it will be the date of the last day so in this case 30 days.

5. Formal Bank Finance and Unconditional.

After you’ve got the executed contract of sales, provide this to your mortgage broker or bank. You will now apply for the formal finance approval.

Provided the bank has not tightened their credit policy or your circumstances havent chnaged in the last three months since your pre-approval this should typically not be a problem.

Also, if you have a subject to pest and building inspection clause in the contract and haven’t organised a building inspector yet, organise a building inspector at this stage. If the building report comes back not satisfactory, this is where you can pull out.

To book a pest and building inspection, provide the building inspector with the REA’s details and the property address. They’ll organise an inspection and come back and write up a report for you.

It is very important to write down the date that the contract goes unconditional, this will be the timeline around your last special conditions i.e (30 days for finance, or 14days for building and pest) it will be the date of the last day so in this case 30 days.

If the contract goes unconditional and then falls over due to a condition this may be extremely costly to yourself. This date is critical to remember and make sure all conditions are satisfied prior to these dates.

Once you have signed everything and provided all information to the bank/broker. The Formal finance is typically completed in line with the special condition date, however you should constantly be calling the fianciar for updates to how this is tracking and request the relevant extensions from the solicitor is this is taking longer than expected.

6. Solicitor to Prepare Loan Documents

Once you’ve signed everything, then they’ll grant you final approval. Now there’s not much you can do except for waiting for the settlement to happen.

During this period, your conveyancer will help you prepare documents to transfer the land title to your name and help you calculate the final amounts to be paid on settlement (the settlement shortfall). This settlement shortfall includes outstanding body corps on a pro-rata basis (if applicable), any fees and charges proportionately, council rates, water rates, land and title transfer fees, any government grants and stamp duty concessions and the remaining of the deposit.

If there’s a request from the vendor for the early release of deposit from the REA trust account, your conveyancer will get you to sign the form to release it. You’ll have to release it at the end anyway, so if you don’t see any need to withhold it in the REA’s trust account, you can release it early as a nice gesture.

7. Pre-Settlement

1 day before settlement, the conveyancer will send you a final calculation on how much you need to pay on settlement. If the bank pays all of this amount and you don’t need to pay anything that’s fine. If you need to pay this amount to the bank, your loan document should already tell you how, normally they’ll have a section to direct debit that amount from your account.

Otherwise, this settlement shortfall has to be paid to the conveyancer’s trust account. If this is the case, make sure you ask your current bank to do a RTGS transfer (Real Time Gross Settlement). This means they’ll transfer a large lump sum of money to the receiving account on the same day. Otherwise, if the money takes a few days to clear, settlement can be delayed and you can get charged.

8. Settlement

On the settlement date, if you do an online settlement, you don’t need to do anything. The people from your bank meet up with the vendor’s bank to finalise paperwork and exchange money.

Once settlement has gone through, the bank will notify the conveyancer, the conveyancer will notify you. The vendor’s bank will notify the vendor. You can then meet the vendor or the REA to pick up the key.

9. Congratulations

Congratulations, the house is now yours. You now need to ensure that you are making the mortgage repayments as per the loan conditions.

Always remember homebuying may not be the best investment for you. perhaps look at our article on creating a killer ETF portfolio https://prophet-invest.com/creating-a-killer-etf-portfolio-australia

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