Homebuyers Guide

Are you in the market to purchase?   Loans Australia will help guide you through the home buying maze. We have developed "The 9 Step Guide to Purchasing Your Property Safely!" to ensure each and every purchase is a successful one. Loans Australia will assist you with how much you can borrow, choosing the correct loan product, matching lenders to your finance needs, and then guide you from the application stage through to the settlement of your property.

The 9 Step Guide to Purchasing Your Property Safely!

STEP 1:   Save your deposit

It is important for lenders to establish that you can save money. A consistent savings history will illustrate that you can manage your finances and therefore will be able to manage mortgage repayments. With a small deposit (five percent or less) you will need to illustrate a consistent savings history. The First Home Owners Grant, inheritances, or gifts etc cannot normally be included in the savings portion of your deposit however they can be included to help cover the reminder of the deposit and costs.

There are now more and more lenders willing to lend to first homebuyers with small deposits giving you more choice of both lender and loan product. In fact, there are now lenders who will provide a loan for people with small deposits and poor credit histories or unusual employment histories. If you do have a small deposit (under 20 percent) your loan costs will increase due to Lenders Mortgage Insurance (see 'The Costs of Buying a Property' for more information). On the up side, you are purchasing your first property, getting out of the rental cycle and starting to build up equity in your home - all great steps to wealth creation.  

STEP 2:   Do your sums

Completing a budget will give you a good idea of how much you can afford to pay on your mortgage each week, fortnight or month. Remember that you won't be paying rent anymore so that money can go towards the mortgage repayment. Each lender determines how much of a person's income can reasonably be put towards a mortgage (approximately 30-40%), however you need to be comfortable with the repayments taking into consideration your lifestyle, current financial commitments and possible new expenses associated with your new home, such as rates and maintenance. It is also important that you do your sums in regards to the purchase costs of your property such as stamp duty, transfer fees, government registration and legal fees as these can add up to approximately five percent of the purchase price. Check out the calculators on this website to give you a good indication of the costs applicable. It is important to ask what government incentives if any, are applicable to your circumstances because these incentives could add up to over $10,000 in value.

STEP 3:   Get your home loan approved in principal prior to signing the contract of sale.

Organising your finance prior to the purchase of property has massive benefits. Your Finance Advisor will assess your financial situation, determine how much you can borrow and which lenders will provide the loan you require. A Loans Australia Finance Advisor will show you how you can maximise how much you can borrow. Once this is determined you can research the properties in your price range and purchase with confidence. Your Finance Advisor will submit the application to the chosen lender for an 'approval in principal' which means that you are approved for the loan, subject to the property type meeting the lenders criteria and a valuation being completed.   This approval in principle is generally good for up to 6 months but you should always clarify this with your Finance Advisor.

The 'approval in principal' process is essential if you buy at auction as you are legally committed to the purchase as soon as your bid is accepted and the contract is signed. It is also critical if your deposit is less than 20 percent as you will need to meet stricter lending guidelines. Once the property is purchased the lender orders an independent valuation so they can be assured that the property is worth the amount on the contract of sale. It is important to note that a formal loan offer is the only real guarantee of getting the finance required. A contract or agreement should not become unconditional until the loan offer is received.

STEP 4: The holding deposit

Once you have found a property you would like to purchase, the next step is to make an offer subject to finance approval, valuation, building and pest reports (if you want to do them). You will generally be required to pay a holding deposit to secure the property. This deposit could be as low as $300 or up to a couple of thousand dollars and will generally secure the property for up to 14 days. This will normally give you enough time to make sure the property stacks up.

The holding deposit is not the same as the usual 10% deposit you will pay on the exchange of contracts. The holding deposit is just a sign of good faith to show the vendor that you are serious about purchasing the property. This holding deposit is not binding in anyway and is fully refundable if the purchase doesn't proceed. It is important to get a receipt for this money. The real estate agent will give you a copy of the purchase contract which you should have looked over by a licensed conveyancer or solicitor.

STEP 5:   Organise your legal representative

Having a professional deal with the legal aspects of the property purchase can save you from a lot of running around and unexpected headaches. Your legal representative (solicitor or conveyancer) will be able to check the sale contract, conduct a title search prior to you committing to anything and check to make sure that everything about the property purchase is thoroughly understood. In addition, should there be any legal issues your representative will be able to deal with it professionally.

STEP 6:   Reports and inspections

Once you have found the property that you are interested in, organise your pest report and building inspections prior to the purchase, or sign your contract of sale subject to pest and building reports. A professional building report and pest inspection should be completed on any property you are serious about buying. You could also organise a valuation on the property to ensure the property is worth what you are prepared to pay. Or, sign your contract 'subject to adequate valuation' ensuring you are not paying too much. This gives you the right to walk away from the contract should the bank value the property below what you paid for it.

STEP 7:   Ensure the property meets lending guidelines

Before the 14 day holding period has expired it is vitally important to make sure the property meets the lenders criteria. Lenders place restrictions on how much can be borrowed against certain property types. For example, if the property is located in a small town a lender may restrict the amount borrowed to 80% or less. Lenders also place borrowing limits against some inner city apartments, very small units, warehouse conversions or rural properties. It is critical to ensure that you can borrow the amount you need for the property you want. You will need to provide your lender with a copy of the contract of sale in order for the lender to value the property and issue a final unconditional loan approval.

STEP 8:   Exchange Contracts

Once your solicitor is happy with everything and you have your loan approved the formal exchange of contracts can take place. The contract sets out the property details, purchase price, buyers name and address, the vendor's details and generally the solicitor for each party. The contract will also outline the terms of the sale and the settlement date. The contracts are prepared in duplicate and both the buyer and seller sign a copy each. Once both are signed the contract is binding and the vendor will generally want a 10% deposit on the property. The deposit can take the form of cash, bank guarantee, deposit bond or could be on vendor terms.

As soon as the contracts are signed Loans Australia recommends you organise building insurance (if you have purchased a house) to make sure if something did happen to the property before settlement, you would be fully covered.

STEP 9:   Determine the settlement date

Settlement is the legal transfer of property from the vendor to the purchaser. In most cases you will be able to negotiate a settlement date with the other party. A 30-day loan contract is a very short time frame for many lenders, so we recommend a 45 or 60-day settlement date. With special circumstances a property can be settled in 30 days or less, however we recommend you opting for a longer settlement time frame just in case it is needed. Congratulations you are now the owner of a new property.

Questions to consider:

• Have I saved enough deposit?
• How much can I borrow?
• What can I do to increase my borrowing capacity?
• Have I got a solicitor/conveyancer?
• Have I got my loan approved in principal?
• Have I organised a building and pest report?
• Have I signed the Contract of Sale, 'Subject to Finance'?

How can Loans Australia help?

• Identify the amount of deposit required for the property you wish to purchase.
• Determine how much you can borrow.
• Outline any possibilities to maximise your borrowing capacity.
• Help you compare loan options and choose the right loan.
• Give you access to over 50 residential lenders.
• Let you know if the property chosen will meet the lenders guidelines.
• Organise an 'approval in principal'.
• Allocate you a Client Manager to ensure settlement happens within the required time frame.