Buying Your Own Home - Reprint

Source : YOUR MORTGAGE MAGAZINE NO.50 JUNE 2004

Buying your own home

The search is finally over! You havefound the right house and you are readyto buy. Take some time out and makesure you understand how each step inthe buying process will lead you to asound investment.

There's no point in looking for a house to buy if your finances aren't properly organised. Make sure your loan has been pre-approved so when the opportunity comes along, you are ready to pounce.

After you have arranged your loan and found the home you want, you should get the property independently valued, organise building inspections and have an expert look at the contract of sale to check what you are buying.

Once you make an offer and it's accepted, you need to pay a deposit, exchange contracts and organise con-veyancing. We outline the critical steps to home owner-ship below.


Independent valuation

It's a very good idea to get an independent valuation of a property before you buy to make sure you don't pay too much. The price real estate agents ask for a property isn't necessarily its market value and most likely will be more than the house is actually worth.

I n a strong property market, buyers run a greater risk of paying too much. An independent valuer can guide you on whether you're paying a good price or not. Call the Australian Property Institute for a list of licensed valuers in your state.

You can also purchase the Home Price Guide, a suburb-by-suburb report containing all reported property sales in the postcodes of your choice, so you know what people have paid for similar properties over the last 12 to24 months.

You can contact Home Price Guide via the internet (www.homepriceguide.com .au) or 1800817 616.


Inspect the sale contract

Once you have found a property you like, you can ask the agent for the vendor's document or the sale contract. The contract will include the terms of the sale, as well as a number of things you need to know about the property such as its size and deposited plan number, which will allow you to undertake further investigations. Normally, vendor's documents are available for inspection upon request from the vendor's real estate agent and prior to an auction.

Always get your solicitor to check the contract before you sign it. The contract should include:
? A copy of the title.
? A zoning certificate from the local council.
? Any permits for building or renovation work conducted in the last seven years,
? Details of any existing mortgages over the property.

Make sure you check inclusions with the agent, especially fixtures such as dishwashers and built-in-wardrobes. You'll be surprised how many people take things like car ports, air conditioners and pergolas after they sell the property.


Making an offer

The most common way to buy property is by private treaty or auction, either through a real estate agent or by dealing directly with the owner.

If the property doesn't go to auction, you need to make an offer, which you hope the vendor accepts. The danger is that you may offer too much or too little, but you can be guided by the vendor's asking price.

It helps to know the market, as you can quickly work out if you are getting a good deal or not. It's usually wise to make a lower offer, within 5 per cent of the asking price, although the range can increase in a depressed market or where the vendor is asking too much. Remember, the agent gets a commission on the sale price, so the higher the price, the greater their commission.

Offers are usually made by one of two methods. The most common is simply a verbal offer to the seller's real estate agent. Alternately, a sales summary can be prepared by your solicitor and forwarded to the solicitor of the vendor. Note that your solicitor is likely to charge you for this service. Make sure you make an offer subject to special conditions, such as pest or structural inspections or even finance approval, as necessary.

The holding deposit

At this stage, you might have to pay a holding deposit, which can be as low as $500 or as much as several thousand dollars. A holding deposit doesn't replace the usual 10 per cent deposit you pay when you exchange contracts.

Instead, it simply acts as a sign of good faith to show the seller that they are serious about buying the house. The holding deposit doesn't bind the seller in any way and is refundable in full if you are beaten by a better offer. Make sure you get a receipt.

Due diligence

There are number of different inspections you can make before you buy a property, including pest, structure and strata inspections.
Ideally, you should have the inspections conducted before you exchange contracts. Other necessary pre-exchange investigations
include:

? Sewage certificate
? Property survey
? Title searches, and
? Building certificates

These inspections are likely to cost you a few hundred, but don't baulkat the cost. It is vital that you find out about any hidden nasties like damp, termite infestations, shifting foundations, faulty wiring and plumbing.

You can then factor in the cost of repairs to the purchase price or decide to drop the deal altogether if the expenses outweigh your desire for the property. F or an example of what a termite pre-inspection involves, turnto page 70.

Archicentre, the advisory division of the Royal Australian Institute of Architects, runs a home inspection service for homebuyers. The service starts from $395 and is available nationally. It includes details on defects, repair costs, electrical inspection, structural damage, rising damp and renovation potential.


Arranging finance

Before you exchange con-tracts, you really need to finalise your financial arrangements. This is a very important step, as you will need to provide your home lender with a copy of the contract of sale to get final approval and a loan offer. Your mortgage documents are prepared, ready for final payment at settlement.


Exchange of contracts

Once the vendor accepts your offer, both parties need to sign and exchange the contracts of sale. You, as the buyer, also need to pay the vendor a 10 per cent deposit.
The contracts are prepared in duplicate and both the seller and buyer sign a copy each.

The seller retains the copy signed by you and vice versa. Once the vendor signs the contract, which you have already signed, a binding contract exists .The contract sets out the names of the vendor and buyer, a description of the property, the price, the terms of the sale and the settlement date.

The contract is usually a standard, printed form, which rarely needs changes. If necessary, however, you can attach special conditions in writing. Contracts should only be exchanged' once the building inspections are completed and finance has been approved in writing.
Be careful! Anything you sign will be binding so your conveyancer or lawyer should check the contract before you sign. Your legal representative will also handle items such as the payment of stamp duty.


Paying a deposit

Buyers usually pay a 10 percent deposit of the purchase price on exchange of contracts to the buyer. This money is usually held on trust by the real estate agent, pending settlement

You may have up to seven days to pay the deposit, depending on the terms of the contract. Note that if you buy at auction, you are required to pay the deposit immediately after the fall of the hammer.

Cooling-off period

A cooling-off period is the small time period during which you can withdraw from the contract if you change your mind. The number of days varies from state to state but is often five days. A vendor cannot accept any other offer on the property during the cooling-off period.

A cooling-off period only applies to private treaty sales but not to properties bought at auction. This time allows the buyer to make an offer and exchange contracts immediately after the offer is accepted and then seek legal advice, financial approval or undertake any additional inspections necessary.

A benefit of the cooling-off period is that it removes the chance of 'gazumping'. Gazumping is where another buyer offers the vendor a higher price than yours for the property and literally takes the property from under your nose. If you wait for both the inspections to be completed and finance to be approved before signing the contract, you run a greater risk of being gazumped.

Remember, if you change your mind after exchange and don't want to go through with the sale, it will be extremely hard, if not almost impossible, to get your deposit back.


Settlement

Settlement is the legal transfer of property from the vendor to the buyer and is usually handled by your solicitor or a licensed conveyancer, although you can do it yourself if you wish.

If you choose an expert to handle the settlement for you, you will be charged a conveyancing fee which covers all the costs associated with the transfer of property, except for stamp duty,

Most conveyancers or solicitors will give you a free quote but costs generally range from about $600 to$1,500. An article on this subject matter appeared in the April 2004 issue of Your Mortgage Magazine. At settlement all outstanding issues need to be settled, all existing loans are paid out, funds are made available by the lender and the keys are handed to you or your representative .It is at this stage that the title deeds are handed over and the outstanding balance of the purchase price is paid.

Your lender will usually send a representative who will make payments according to the list you supplied earlier.
The list may include the vendor's lender if there is an outstanding mortgage, the local council for unpaid rates and even separate cheques if the vendors are tenants in common.

The lender will obtain all the necessary mortgage discharges as well as the certificate of transfer and title deeds necessary to transfer the change of ownership into your name. You will get the title deeds from the lender on the day you payoff your mortgage.

Once settlement is completed, the vendor is expected to give vacant possession to the purchaser. A final inspection is often a good idea on the day of settlement to check that nothing is missing or has been broken. .
 

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