There is a lot of emotion in buying property at any time, but possibly even more so with the current unpredictability and uncertainty of the property market. Much of this is fuelled by some pretty dark messages from the media (the ones coupled with aeroplanes exploding, mudslides and atomic blasts that indicate things are going badly). Property will always have its ups and downs, it’s important that you buy property when you need it and when it’s financially viable for you to do so.
That probably doesn’t remove a lot of the overwhelming emotion for you if you are about to make a property purchase. It is a big investment and needs to be approached with care and diligence, so if you are hesitating, that’s probably a great thing. It's important that you don't hesitate too much, you need to know when you are ready to make your move.
In this blog we cover the top five things to consider when buying property to help you get that perfect balance between making a smart decision and securing a deal before other buyers swoop in.
- Affordability
- Reliable research
- Know your inclusions
- Building and pest inspections
- Know what you are signing
What to keep in mind when buying property
Buying a property has a lot of different angles, you are probably going to be focused on the more tangible ones - like room layouts, number of bedrooms and quiet streets. There is plenty more to consider than just the property at hand. There is the ongoing mortgage payments, maintenance, upfront costs and the legal side of things you also need to be considering as part of your property suitability and value. These are the five things you need to get the detail on before you agree to buy.
1. Affordability
As exciting as searching for homes is, it's important that you start out slowly. Jumping into property searches before you’ve done research on affordability can lead to disappointment if your lender’s estimates are lower than expected, but can also lead to disaster if you overstretch what you can pay.
While it might be tempting to go to the maximum of your lending ability, you do need to leave some room for things to go wrong. You want to be able to keep building healthy savings while repaying your mortgage so you can pay for any unexpected maintenance expenses or bills that are not part of your regular budgeted expenses.
While a home loan estimate can take a matter of seconds online it won’t be taking into account all the details a lender will assess. In reality the paperwork can take a number of weeks, not just to process but for you to have the correct details to fill in. Having an accurate budget that includes your income and expenditure is required for your lending assessment but also essential for you to have a solid grasp on your financial margins and any lifestyle changes you’ll need to make to be able to afford your home comfortably.
Having your home loan pre approved when house hunting can give you more strength on an offer as well as help you in negotiations. Just be careful that a preapproved loan is not the same as an unconditional loan especially if there has been an interest rate increase since your pre-approval went through.
Upfront and Extra Costs
Your biggest upfront cost is going to be your deposit. You will be required to pay some amount to secure the property which is typically negotiable from 5% to 20%. Your broker or lender can make suggestions to the amount you write on your offer form as well as the time frames of any financial checks that might still be needed.
If you are buying at auction you will need to pay 10% at the time of signing on auction day. This is usually not refundable so let your conveyancer know of your plans to buy at auction day so they can walk you through your legal obligations and how it will all work so you won’t be caught out.
You will need to pay a total of 20% of the property upfront in order to meet the lender’s criteria, however, there are some schemes in place you can turn to if you don't have this, or you can pay the Lenders Mortgage Insurance which will be added to the cost of your overall loan. Be sure to go into the pros and cons of this before you decide as the costs and fees over time can be high.
Aside from your deposit you will need savings in your bank account to cover immediate costs as well as those that will occur on settlement day. These include:
- Mortgage fees
- Title transfer fees
- Stamp duty
- Home insurance
- Loan fees
- Conveyancing services
- Building and pest inspections
- Council rates
- Water rates
- Title Insurance
- Moving costs
- Title background checks
If you qualify for the first-time homeowner land tax concession, you will still need to pay the government and transfer fees. Your conveyancer will look after the payments associated with the property transfer, including calculating the rates and government fees, while your lender or mortgage broker will take care of any bank fees and total loan costs.
Before you even start your property hunt, it pays to draw up a budget, write out all your ongoing expenses, and make a list of everything you’ll need to pay in the first few months following your home purchase. This way, you can get an accurate idea of what you can comfortably spend on a home.
Know your Loan Limits
Even if you have pre-approval on your loan, it’s still best practise to tick the box “subject to loan approval." This will cover you in case there have been any changes since you last applied with the lender, which might include increased rates, a change to your credit score, or the government tightening lending criteria. If you are looking for any assistance with the deposit through a first-home guarantee scheme, make sure you tell your lender or broker early so they can reserve a spot for you, as these are limited.
The difference between Pre-Approval and Unconditional on your home loan
Pre-approval gets you a good fit with a lender. Different lenders offer different packages that are suitable for different types of mortgages and incomes. The pre-approval stage lets you know which lenders are right for your financial situation and gives you an estimate on your loan availability with a particular company.
Another advantage of pre-approval is that you become acquainted with the paperwork and what is required so that you can begin collecting it prior to your formal loan application. It can take some time for you to get organised to have everything a lender requires, slowing down your approval times, so knowing what you need in a practise run (pre-approval application) helps put things in motion.
In a lot of cases, you can simply supply the necessary details for pre-approval without any proof. To move to an unconditional loan or formal approval, there will be more thorough checks, and interest rates and fees for the current climate will be factored in, as well as the property value, government fees, and any stamp duty you need to pay.
Many people are taken by surprise that they need to submit a lot of the same details again for the loan progression; make sure you are ready to redo the paperwork in full if necessary and allow adequate time for this to happen.
2. Reliable research
Once you know your approximate home purchase margins, you can start looking at properties. Rather than looking at all properties everywhere, define what you want by researching areas, housing prices, neighbourhoods, and infrastructure to find something that will suit your lifestyle and preferences. If you haven't had any experience with home renovations or DIY, a fixer-upper probably isn’t going to work well for you, but it might be the perfect home for someone who knows how to bring out a property’s potential.
When you research carefully, you have a solid understanding of what you need and what you get, so you can find the perfect match. It’s the best way to avoid settling for a property you don't really want and overpaying for something you don't really need.
Questions to ask:
- Where do you want to live?
- What are the recent sales in that area? including - numbers, property type and prices.
- How do prices and demand compare in surrounding suburbs?
- What inclusions and amenities do you need? (car parking shopping centres, schools, transport)
3. Don’t Assume Inclusions
Chattels, or fixtures included with the property, are usually pretty standard across property sales contracts. Sometimes there can be conditions written into the contract that are easy to overlook where something that is usually standard is taken out - or something that is usually taken out deliberately left in.
Knowing any quirks about inclusions before you buy gives you the power to negotiate or override conditions. If left until after settlement, it can be harder to make a claim. Even if you find something unexpectedly missing or included on your pre-settlement inspection, it may increase your settlement time while you try to sort it out - something you might not be willing or able to do.
We’ve read thousands of contracts, and we can quickly spot when something isn’t right.
Typically, your property will come complete with all existing:
- Electric light fittings
- Fixed floor coverings
- Window dressings
- Fixtures and fittings
Places to be especially mindful of are:
- Removable clotheslines
- Dishwashers
- TV antennas
- Remotes for automatic doors and split systems
- Very large feature pot plants
A good conveyancer will make sure that all the wording in your sale contract adequately covers the standard inclusions and will bring it to light if there are any grey areas. This can only be done before you sign the dotted line, so make sure your conveyancer has access to the paperwork early - ideally before you sign or, in the worst-case scenario - within the cooling-off period.
4. Get a building and pest inspection completed
When you make an offer, you have the option of making the contract 'subject to a building and/or pest inspection report.’ While this is an extra expense, it's well worth doing as it can give you a great rundown on the property condition and let you know what you are up against as a homeowner. Even if you are happy to go through with the purchase after a report comes back, you can plan, budget, and prioritise any required repair work down the track.
The real estate agent should offer both options upfront for you to choose from as well as information on financing.
In some cases, you may hear that an agent has a standard clause that covers you for building and pest inspection; however, this typically only covers you for major structural flaws and leaves you stuck with any expensive and more typical problems that might be found.
You need to be able to pull out of the contract if you feel the property isn’t worth what you expected.
If you are buying land, a building and pest inspection won’t be necessary, but you can look into the possibility of getting a surveyor to make sure the boundary lines are accurate. We can check that the title is correct and suitably subdivided.
On that note, if you are buying land that you intend to subdivide, make sure you talk to your conveyancer first as there are some considerations you’ll want to take into account on the legal side as well as time frames, etc. for getting this done.
5. Know what you are signing
Most people sign a contract under the guidance of their agent. The real estate agent is there to provide assistance to both the buyer and the seller, but they don't have legal qualifications to assist you or know the contracts in detail. The only people qualified to handle the legal side of your property purchase are a conveyancer or a solicitor with a conveyancing licence.
You need to know what you are signing and what the legal ramifications are to listed items such as easements and exclusions. Once you sign, you have a very limited amount of time to get out of the contract, so you need to take the time to know exactly what it is you are agreeing to.
Use a conveyancer for guidance and support
Your conveyancer will take the time to walk you through your contract step by step, explain the terms and what everything means as well as how it applies to you so you feel absolute confidence when it comes time to sign.
Conveyancers only work in property, so they will usually have more experience and hands on knowledge than a solicitor who works in multiple areas of property.
Having a full team of qualified staff to assist with your queries is part of the confidence working with a professional business brings. At Peta Stewart Property Conveyancers, email queries, phone calls, and even sit down discussions are all pre-billed into our package, so you can lean on us whenever you need to without running up an unexpected bill for “additional services” or hourly rates. If your direct contact is in another meeting, we have a system where any of our staff can take your call and give you the correct advice to reach a timely solution.
What is a conveyancer?
People often confuse Conveyancing with Surveying but these are very different professions and industries. A surveyor conducts land surveys of the land to map and measure it using math and specialised equipment. It's especially helpful for defining land boundaries and subdividing land.
A conveyancer looks after all the paperwork leading up to settlement and oversees your property purchase on settlement day. We handle all the charges involved, get your paperwork through the land office, and ensure everything is set up between you and the bank for your payment.
You will need a conveyancer to get your settlement completed, so make sure you choose an experienced and reliable company and get them on board with your property journey nice and early.
Your property purchase is likely to be one of the biggest financial decisions you’ll make, so it’s important that you slow down, decrease the emotions, and get it right.
If you are feeling pressured, talk to us. You have the right to legal advice and to know what you are buying.
Peta Stewart Property Conveyancers has a team of experienced, qualified, and dedicated conveyancers for you to contact to assist you in overcoming common traps and pitfalls and getting your home purchase across the line smoothly.
Your property purchase is an exciting time, so let us handle the stress and questions so you can enjoy it.
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