It is an exciting time when you have finally found your first home after spending many months and even years to save enough for a deposit on a home, especially with a rising Sydney property market.
Although inspecting houses and imagining the creation of a new home is fun, it is important to do proper research and due diligence before exploring the property market and committing to your first purchase.
You should consider the following steps when buying your first property:
Step 1: Finances
Make sure your finances are in order.
You should have at least a pre-approval for a loan from a bank in writing. If you do not have pre-approval for a loan, please contact a mortgage broker or a bank loan officer before commencing the search of a property. Most pre-approvals documents are valid for only 3 months so ensure that you liaise with your broker or bank if your search for the right property is taking close to or more than 3 months. Normally, your broker and/ or bank will ask for updating documents like your payslips, credit card statements, savings account statements, etc.
You should factor in your savings, amount of borrowings from the bank, and whether you are eligible for any grants or exemptions from stamp duty. This will enable you to set your budget correctly and manage price expectations in your property search.
When calculating how much is needed to buy a property, you must include the purchase price, stamp duty, adjustments, legal fees, disbursements, bank fees, and Land Registry Services fees (registration of transfer and/or mortgage documents).
For example, if you wish to purchase a property (assuming you are not eligible for any stamp duty grants or exemptions and there is no purchaser's surcharge applicable), you will need to budget for the following:
Purchase Price
Deposit (usually 10% deposit)
Stamp Duty
Adjustments (for council and water rates, and strata levies etc)
Legal Fees
Disbursements
Bank Fees
Land Registry Services
Most banks will only lend 80% of the purchase price before charging mortgage insurance (i.e. LMI). Therefore you will need to have about 20% of the purchase price as a deposit to avoid having to acquire mortgage insurance.
Step 2: Due Diligence
Order a building and pest report (for a standalone property or duplex) or a strata report (for an apartment or townhouse).
The reports will give you information about the property’s condition. It should cover issues such as the following:
Termite issues;
Mould or dampness issues;
Illegal building works;
Structure issues:
Issues with retaining walls;
Water issues;
For strata properties, any problems with the apartment building which may attract a special strata levy; and
Any other issues found on the property.
If you have any concerns about the physical condition of the property, speak to the report writer and ask the real estate agent about any issues raised in the report. They should relay those questions to the seller who may be able to provide an adequate answer.
Issues raised in the report should be factored in when negotiating price. For instance, if there is an issue with the carpet that requires repair work, then you should adjust the offered price accordingly.
Step 3: Contract Review
Retain a lawyer or a conveyancer to review the Contract. The contract will contain information about the legal title of the property and the conditions of the sale.
The lawyer/conveyancer will provide you with advice on the terms and conditions in the Contract and may prepare a draft letter requesting amendments to the Contract if there are any unfavourable terms in the contract.
Once the lawyer/conveyancer has issued the requests for amendments to the Contract, let the agent know and they will follow up with the vendor and/or their lawyers/conveyancers.
When all parties have agreed on the final version of the Contract with the agreed amendments, the parties will then arrange for the exchange of the signed Contracts which is when the contracts are swapped and dated. The parties will then be bound by the terms of the contract. The lawyer/conveyancer will sign the s66W certificate which is a certificate of independent legal advice and there will be no cooling off period upon exchange.
If the parties have already signed the contract without first obtaining legal advice, this is called exchanging contracts with a cooling off period. The agent will ask you to deposit 0.25% upon signing the contract. The cooling off period is usually 5 business days and that time enables the purchaser to obtain legal advice. At the expiration of the cooling off period, the purchaser can choose to proceed with the contract and pay the remaining balance of the deposit. Alternatively, the purchaser can choose not to proceed with the contract and will lose the 0.25% deposit to the seller. Strictly speaking, a contract cannot be amended after exchange of contracts. If there are any changes required, the parties should first rescind the contract and enter into a new contract. However many sellers are willing to agree and uphold any amendments after the exchange of contracts with a cooling off period.
Step 4: Timing
A normal contract settlement period is 42 days being 6 weeks from the date of exchange to the date of settlement. Settlement is when the transaction is complete and the purchaser is the legal owner, and is entitled to possession of the property and has access to the keys from the real estate agent.
During the conveyance period, your lawyer/conveyancer will conduct searches on the title of the property and prepare the property for settlement by calculating the amount due at settlement. Council rates, water rates and usage, and strata levies (if any) will be adjusted at settlement as these rates are charged every quarter. Therefore the purchaser and the seller will need to calculate their share of the rates. If you are borrowing monies for the purchase, banks will normally need at least 4 weeks to process and finalise the loan and be prepared for settlement.
If you are currently renting, read through the terms of your lease especially the termination clauses. You should issue the appropriate written notice of vacating your current premises and when settlement draws near, make sure you have adequate time to move your home contents. If you are buying and moving into an apartment, most strata managers will require people to make a booking to move in and ask for a holding deposit in case there is any damage caused by the move.
When you are planning for the move, you should also ensure that you have attended to the following:
arranged for insurance for the property;
organised utilities such as electricity, gas, and internet
redirection of mail to your new address
check that you have updated your contact address on your driver's licence, bills, banks, etc
The above information is based in the NSW jurisdiction.
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*** Disclaimer:
Information on this website or post does not constitute legal advice and that electronic dialogue with readers does not constitute any form of client engagement unless specifically agreed.
The information is provided on a general basis only. We strongly recommend that you seek your own independent advice from a lawyer about your situation.
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