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Pre-approval, what's next?

Tips and hints when buying your next home or investment property



When you find a property which you are keen to make an offer on; I recommended letting you broker know. They may have access to a property report but more importantly they will remind you of the next steps in the process.

When purchasing a home outside of an auction (private treaty sale) you traditionally have a cooling off period.

During this time you want to finalise the finance, which may require a valuation to be completed. Any inspections such as building or pest should also be undertaken.

Costs

Buying a new home or investment property is expensive, there are lots of things you need to be aware of. Some of the different fees and costs you may incur during the process are:

Holding Deposit - when buying a property through a traditional sales process (private treaty) you will need to pay a holding deposit of 0.25%. The holding deposit is payable when your offer has been accepted and after you sign the contract of sale. This deposit is traditionally not refundable.

Deposit - the remaining deposit is paid at either the end of the cooling off period or under auction conditions on the day. The deposit is usually 10% of the purchase price, although it can be often negotiated down to 5%. This is something you should discuss with the selling agent when making an offer. Once your cooling off period has expired, the deposit paid is non-refundable.

Stamp Duty - is a government fee which is payable prior to settlement, although speak with your solicitor or conveyancer as is can often to paid from the loan proceeds at settlement. For first home buyers this fee might be waived or discounted.

Lenders Mortgage Insurance (LMI) - is an insurance policy traditionally taken out by lenders when you borrow more than 80% of a property's value. The policy protects the banks against any future loss, should you fall behind on your loan. The policy doesn't provide you any benefit or protection, even though the bank passes the cost to the borrower.

It is recommended you have additional saving (of at least around $5,000) available to cover other fees. These could include items such as your solicitor or conveyancer, bank fees, property fees and moving costs.

Auctions

Buying a home at auction is different from a private treaty sale. The main things you need to be aware of are:

1) You do not have a cooling off period when buying a home at auction. This means you need to complete any inspections such a building or pest inspection completed before the auction.

2) When successful at auction you need to pay your deposit, usually 10% on the spot. If you want to negotiate a smaller deposit or a longer settlement period, it is recommended you discuss these with the selling agent prior to the auction.

Deposit

After contracts have been exchanged you will need to pay a deposit, this is usually 10% although a smaller amount can often be negotiated.

You will need to arrange either a cheque or electronic transfer, depending on the selling agents preferred method.

This is not something your bank can pay, as they will not extend any finance to you until settlement of the property, when they take security (via a mortgage) over the property.

If you are borrowing 100% of the purchase price and don't have any funds to cover a deposit, another option is a 'Deposit Bond'. This should be discussed with the selling agent when making your offer.

Valuation

A valuation will need to be completed on the property you are purchasing. This is often completed electronically. If a physical inspection of the property is required, it could take anyway from 48hrs to a week, if the valuer has problems gaining access to the property.

It is important the valuation is ordered immediately to avoid delay and giving you the best chance of obtaining formal approval before the cooling off period expires.



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