Owning your own home is the Great Australian Dream – however, it can also be a mystifying and confusing experience, involving many professionals and a seemingly arcane legal process. So, here’s our five-step guide to getting through the buying maze.
Step 1: Laying the groundwork
First of all, set your goals. Create a ‘to do’ checklist and tick them off as you achieve them. Set deadlines too, as this will help you achieve your final goal of owning your first home.
It’s essential to work out exactly where you stand financially. You need to know precisely what you’ll be able to afford to pay back each month, as well as what the upfront costs are going to set you back. Putting together a budget is relatively simple – as long as you’re disciplined about it. Essentially, you subtract your monthly expenses from your monthly income.
However, the key is being realistic: so factor every last thing into your equation. Do you stop for coffee or a drink on your way home from work? Write it down. Do you splash out on lunch one day a week? Include this. Don’t forget to budget for unforeseen circumstances such as illness or car damage. Once you’ve calculated your budget, work out how much this equates to in terms of the amount you can borrow.
Step 2: Research mortgages
Once you’ve arrived at a ballpark figure of how much you can borrow and how much you will need to have before you think about borrowing, it’s time to go loan shopping.
Doing the following things will help you choose your lender:
If you haven’t yet chosen a financial institution, it may be worth enlisting the help of a mortgage broker. They can suggest a wide array of loans that suit your needs. Once you have chosen your lender and home loan product, it is time to apply for your pre-approval.
Step 3: Find a property
Don’t leap headfirst into viewing properties: talk to family and friends about possible areas for your first home, read property magazines, newspapers, and subscribe to property reports and newsletters to collate data.
Contact real estate agents in your suburb(s) of choice and sign yourself up to their daily and weekly property alerts. It can be a good idea to ask each real estate agent what properties they have on the market in your price range. Sometimes properties are not advertised online. Give agents your wish-list and ask them to contact you ASAP if anything comes on the market in your price range in your chosen suburb(s).
At this point, you should also be lining up a legal representative. Both solicitors and conveyancers are qualified to prepare documents for the registration and transfer of your property and give legal advice on contracts. It is imperative you get a few different quotes and settle on a legal representative that you feel 100% comfortable with. The best way to do this is to get recommendations from both family and friends.
Once you’ve established your price range, it’s time to familiarise yourself with what’s available at that price. Go to open for inspections in the area you’re looking to buy in, and take a ‘homebuyers’ checklist and a digital camera so you can record each home you inspect.
Take your time before making offers on your favourite properties. The key is to make sure you feel like you know the local market, and never stray from your buying capacity.
The most important thing here is to have your pre-approval in place so you can move quickly on properties you like, and keep your conveyancer or solicitor up to date with your progress.
Step 4: Due diligence
Once you’ve found the right home, it’s time to get the professionals in for an inspection. Don’t baulk at the cost – likely to be anywhere between $200 and $600. It’s vital you find out about any hidden nasties like rising damp, shifting foundations, faulty wiring and plumbing, etc. That way you can factor in the cost of repairs to the total amount of money you’ll have to fork out.
The only downside here is if the inspection reveals something seriously wrong with the property, or if you suddenly get cold feet for another reason. You’ll feel like the inspection was money down the drain, but think of it this way – what if you had discovered that colony of termites after settlement?
Step 5: Taking the plunge
If you’re satisfied that the property is OK, then it’s time to make your move. The price tag says $200,000. But how much do the vendors really expect to get?
According to one agent we spoke to, it’s wise to make an offer within 5% of the asking price, although the percentage can increase in a depressed market.
Chances are you can bargain the vendor down another thousand or two, but don’t be greedy, or you may miss out to someone playing the same game who knows when to stop. You want to get the best deal but don’t walk away from a property because of $5,000. If you really want it, make the final negotiation.
Once you’ve agreed on a final sale price, you’ll need to notify your legal representative. Don’t sign a thing until your solicitor checks the sale contract.
If you are purchasing at auction, ask for a contract well beforehand. You may want your solicitor or conveyancer to include some special conditions into the contract.
When your solicitor or conveyancer gives the contract the thumbs up, and you have written loan approval from your lender, it’s safe to pay the deposit. The contracts between vendor and purchaser are then formally exchanged. Special circumstances aside, you are now legally required to go ahead with the purchase, and will face severe penalties, such as the loss of your deposit, if you don’t. Your solicitor or conveyancer will now make final checks on your property.
Checking out rates, heritage orders and general documentation are all part of the process known as conveyancing.
While you’re waiting for settlement, you should prepare change of address information, obtain removalists’ quotes and arrange quotes on any urgent repairs. Come settlement day, you and the vendor, your legal representatives and a representative of your lending authority meet to exchange cheques, sign the mortgage and other documentation. Welcome to your new home!