A survey conducted by Australia's leading mortgage broker,
Mortgage Choice, uncovered an interesting fact - 55% of Australians were confused about the property loan process, even if they had been through it before.
34.6% of respondents (who were both potential and current property buyers) thought finding the property first and then seeking mortgage information was the way to go. In our professional opinion, it is best to reverse that process and build up knowledge of your mortgage options and borrowing limits first.
Established in 1992, and with a panel of leading lending institutions, Mortgage Choice writes around I in 20 of Australia's property loans. Our loan consultants do not charge you for their service and are paid the same commission regardless of lender or property loan chosen by the customer from our lender panel.
We know there can be many questions when you talk to your Mortgage Choice loan consultant, for example:
- What is meant by fixed, variable, offset, etc?
- How much deposit do I need?
- What if interest rates increase?
- Is there enough equity in my existing property to buy another?
- What actually constitutes genuine savings?
Before buying a property there are several steps you should consider:
Determine how much money you can borrowIt makes sense to find out how much you can borrow before property hunting, so visit your Mortgage Choice
loan consultant. There is a significant difference between lenders as to how much they will lend — it varies depending on income, savings pattern, liabilities and so on. And, in some circumstances, you may be able to get a loan without a deposit. It may turn out that you currently cannot borrow enough to buy the preferred property but can do so in a few months.
Once you know the maximum amount you can borrow, draw up a budget to see what monthly repayments you can afford. Lenders make general assumptions on living expenses when determining maximum loan amounts and your living costs may be higher than average or you may not want to make maximum repayments. Everyone has different spending priorities and you must be comfortable with the commitment.
Allow for costs involved in the purchase and any government concessions available. There are significant stamp duty concessions for those buying a property to live in. There is also the $7,000 First Home Owners Grant.
Should you get a 'pre-approval' from a lender before looking? You do not need a loan approval to make an offer on a property though in some cases it is advisable to get pre-approval first, such as when your circumstances are not clear-cut or are borderline in terms of the amount you wish to borrow. Take advice from your Mortgage Choice loan consultant. A 'pre-approval' is typically valid for 3 months and is subject to the property being suitable to the lender. If your borrowing position falls within the lender's criteria then you will receive approval.
Research before looking Buying a property is a big financial step, so think carefully about what will most suit you. For an initial purchase, this may not need to be your dream property. Come up with a priority list - what localities are suitable / how important is access to schools, shops and transport / is it a house, unit or townhouse / an existing property or build a new property / what size and 'non-negotiable' features are important / what features are essential if you plan to occupy the property and have, or plan to have, children?
Once you have come up with options then ensure you buy it for the right price. You should research prices in the area. This can be done in many ways, including looking at properties listed in real estate windows, newspapers or on the web.
Most properties offered for sale through a real estate agent advertise a sale price. Remember, the agent is legally working for the seller to maximise their sale price. Auctions are also common, whereby the price is not advertised and the seller is hoping for buyers to bid against each other to maximise the sale price (though this does not always happen). You need to research more and be better prepared to buy at auction. And there are other differences on which a loan consultant can advise you, e.g. a property is for private sale without a real estate agent involved.
Make an offer by signing a contract To make an offer on a property you will usually be asked to sign a formal contract. This is typically done on a standard Real Estate Institute of Qld (REIQ) contract form. On this you will also write down any special conditions your offer is subject to. The standard contract provides for an offer to be subject to finance approval and property inspections within time limits specified in the contract.
On signing, you will usually be asked to put down a token deposit and then contribute a more significant deposit a week or two later to indicate you are a serious buyer. The contract will also specify a settlement date for handover. These amounts and the various dates vary according to the agent's and seller's perspective. You may also have specific requirements for how quickly you want to move out of your current place or into the new place.
Cooling off period. Contracts (except auctions) now have a cooling off period of five business days. During this period if you are not happy with the purchase, you can cancel the contract. In this event, the seller has the right to charge you 0.25% of the purchase price.
The contract you sign is a legally binding contract once it is countersigned by the seller. It is advisable to discuss the contract with a solicitor before signing because it is too late for advice after it is signed. Once the contract is official, you should appoint a solicitor or conveyancer to work to ensure you end up with a clear property title. Searches need to be undertaken to ensure you are protected - you can do this yourself but it is not recommended.
Under standard contract conditions the buyer carries the risk on the property from the day after signing the contract so you should consider taking out insurance.
Organise Finance
The contract will specify a date by which you need to have finance approved without any conditions attached. If a lender has provided you with pre-approval you must give them a copy of the contract and confirm the final loan amount required; they will usually then arrange an independent property valuation before giving final approval.
If you do not have a pre-approval, you need to choose a lender and type of loan to suit your circumstances. There are thousands of loans with varying features and costs - offset accounts and redraw facilities; variable or fixed interest rate or part variable and part fixed; set up costs, monthly fees, exit penalties; etc. The combination of these will determine the most suitable loan for you. Your Mortgage Choice loan consultant can help you to weigh up your options.
Once your loan is approved notify the solicitor so they can inform the seller's solicitors. Now the contract becomes unconditional and the purchase will go ahead.
Conduct building inspections The contract usually allows you 7-14 calendar days to conduct the necessary inspections on the property. It is a good idea to choose an inspector licensed by the Building Services Authority (BSA), and don't try to get the job done too cheaply. If problems with the property arise you want to know about them beforehand. Also, check whether the inspector is equipped to do a pest inspection or you need someone else.
If you are not happy about some defects listed in the inspector's report then talk to your solicitor. You may be able to negotiate with the seller to have some defects fixed at their cost or negotiate a lower purchase price. If you think the defects are so serious that you no longer wish to proceed with the purchase, check whether the grounds are strong enough to pull out of the contract.
Settlement Check the phones and power are connected; have you remembered to advise your contacts of the new address and phone number? Your Mortgage Choice loan consultant can provide a checklist to follow, whether you are moving into the property or it is an investment.
18-Sep-2007