Ten Steps to Getting a Home Loan
1. Know the market
You will no doubt do your home loan research, but more important is that you do your homework and research on the area you are buying into by browsing newspaper and internet property listings and speaking to local real estate agents. You might even engage a ‘buyer’s agent’. Attend plenty of property viewings and auctions, each time asking yourself: Does it suit my needs? What are its faults? What are its features? How does its price compare with other properties seen?
The more informed your decision, the better chance the property you buy is the right one in terms of price, location, value, size and lifestyle.
Ask our mortgage broker about property and suburb reports.
2. Do your sums
Once you have an idea of the property market, you need to know what home loan you can afford to spend and repay. Your borrowing power is determined by your income and financial commitments, as well as your current savings and credit history.
As your mortgage broker, we can help you work out how much you can borrow and what type of home loan will suit your budget and lifestyle.
We can advise you of the true costs involved in taking out a mortgage (e.g. stamp duty, taxes, legal costs, bank fees and insurance) as well as how to build in a buffer to home loan interest rate calculations so that you are prepared should rates rise.
To save leg work, we can help you apply for the First Home Owners Grant and check your eligibility for stamp duty discounts. Most of this can be done over the phone.
3. Get the Home Loan tick of approval
Now you know how much you can borrow for your home loan, make an appointment with us to have your finance pre-approved. While you can always leave this step until after you find a property, a home loan pre-approval is recommended because it avoids surprises and confirms your budget to go house hunting with and it ensures you are treated as a serious buyer by agents. As a word of caution, do not tell a sellers agent, your pre-approved limit.
4. Make an offer
When you make an offer, the vendor may accept it straight away or negotiate on the price or other aspects of the sale. If you cannot agree on a price, you can withdraw your offer.
If you buy a home at auction, you are required to pay a deposit usually 10% of the purchase price, immediately, if you buy privately, you are usually required to pay a holding deposit and then pay the 10% deposit when you exchange contracts.
This down payment shows that you are serious about buying but it is not until you sign and exchange contracts that the property is secured. Up until this time the seller can still decide to sell to another buyer who manages to exchange contracts before you (another reason to have finance pre-approved: it shortens the time taken to gain formal home loan approval).
Another option that has become increasingly common is for you to exchange contracts with the real estate agent upon acceptance of your offer, which includes a subject to finance clause, and pay a deposit. The property is off the market from the time of signing and you can use this time to obtain finance and arrange inspections. If there is a problem with the property or finance is declined you can elect to rescind within the legal cooling off period, in which case you could forfeit your deposit.
5. Start the Home Loan paperwork
Contact us with the details of the property you want to buy so we can get the ball rolling on obtaining formal home loan approval. As part of this process the lender may organise an independent valuation of the property, to make sure the amount you’re offering for it is reasonable. You will need to provide us with a range of documentation.
Around this time the seller will make the Contract of Sale available to your solicitor or conveyance for review. The contract is a legal document that outlines your offer, the date of settlement, and any conditions that must be met before the sale goes ahead (e.g.: subject to bank finance).
Take the opportunity to do another inspection on the property checking all fittings and fixtures are in place.
Once the loan is formally approved, there is further paperwork (the actual loan contracts) and a proceedure to make the funds available for your conveyancer to control at settlement.
6. Organise insurance
Proof of building insurance is usually required by your lender as part of the home loan process. Davies Home Loans can help arrange this. The insurance can take effect from the date of settlement or even before settlement if you are not aware that the seller has a current insurance policy.
If you’re purchasing a Strata Title unit, villa or townhouse you’ll need to obtain a Certificate of Currency from the body corporate insurer.
7. Arrange inspections
As the seller won’t provide you with any guarantees about the structural soundness of the home, it is wise to have a building inspection undertaken before you exchange contracts.
You should also have the property inspected for pests because the building inspection doesn’t include the detection of termites and other timber destroying pests.
Also check with the local council and the state government roads and traffic authority about whether there are any future developments planned that may affect your home, your conveyancer normally does this, but check.
If you’re buying a Strata Title property, arrange for an inspection of the books and records of the owner’s corporation.
8. Exchange contracts
A property sale isn’t signed, sealed and delivered until the exchange of contracts. Once you and the vendor have both signed the contract and the purchaser has paid the deposit, the agreement is legally binding. It generally takes four to six weeks from exchange of contracts until settlement (depends on your contract and your state/territory).
If you exchange contracts in a private treaty sale, some States of Australia entitle you to a legal cooling-off period, which gives you the opportunity to withdraw from the contract to buy the property (the length of the cooling off varies from state to state).
If you are absolutely certain the property is perfect for you, you can waive the cooling-off period with the agreement of the seller. Your solicitor or conveyancer will advise you through this process.
10. Pay and settle
Stamp duty, which is calculated on the purchase price of the property, must be paid at settlement. The First Home Buyers scheme provides full or partial exemption on duty to first home buyers – we can advise you of your eligibility.
At settlement, the balance of the purchase price is paid to the seller by your lender (using your home loan funds) and you become the legal owner of the property.
The keys are yours – congratulations!
*The process of buying a house will differ depending on whether the house is sold by private treaty or at auction. Rules may also vary in each State or Territory.