THE LENDING PROCESS
It usually takes between 4 to 8 weeks between exchange of contracts and settlement. At this stage inquires and searches are carried out and legal documents necessary to finalise the purchase are prepared. On the day of the settlement, you are required to pay the balance of the purchase price. This will be done through your Solicitor who will then advise you of when and where to pick up the keys to your new property. Once you have made the decision to enter the property market a number of issues need to be addressed. Whether you are purchasing to live in or for investment, one of your major decisions is how to finance your purchase. Remember - keep a cool head. You take a great deal of time finding your ideal home. You should devote just as much care and thought in choosing your loan.
How Much Do I Need?
Generally, you need to save a deposit and enough money to cover extra costs associated with purchasing a property - other costs include: legal fees, stamp duties, insurance and title searches. Usually, you need to save between 5-15% of a property’s purchase price as your deposit. Some lenders can lend up to 97% of the value of the property you are buying. That means you could get started with a deposit of just 3%, plus enough to cover the extra purchasing expenses.
Your Borrowing Capacity
If you have enough for your deposit and other costs, before you start making offers or bidding at auctions, you need to get an idea of how much you can borrow.
Crossing the T’s and Dotting the I’s
Once you know how much you can borrow you are in a position to start looking at properties in your price range. Although you now know your borrowing capacity, there are a number of other factors to take into consideration. Take care of the legal side of your purchase. A number of options are available. You can use a solicitor / conveyancer / a settlement agent or purchase a “Do it yourself” conveyancing kit. The choice it yours!
We will have your preferred lender approve your home loan “in principle” which indicates how much your lender will lend you depending on which property you buy. Having found the ideal property, ensure you get the appropriate reports and inspections carried out. A building report completed by a professional inspector should be of the highest priority while a pest inspection is also highly recommended. Make sure your legal representative has checked the sale contracts and carried out a title search before the purchase. Only deal with a registered licensed builder and have written fixed quotes with confirmed agreed starting and completion dates.
Points to Consider Before Buying A Home
Before thinking of buying a property, ask yourself these questions - What do I want in a home?
a) Proximity to amenities - Schools, shops, transport?
b) How many bedrooms?
c) Traffic noise?
d) Do we want a pool?
e) What will the rates / strata fees cost?
g) Are adjacent properties well maintained?
h) Do we need a big backyard?
i) Is there adequate parking?
j) Are the kitchen and bathrooms in good condition?
How Much Can You Borrow:
This is dependent on a number of factors -
Your income and commitments.
How much deposit you have.
The cost of the property you wish to purchase.
Your credit rating.
The interest rate, the type of loan and loan term.
Using assets as security.
Your Lifestyle and Living Expenses.
Your income and commitment level
After determining how much you can borrow, you will certainly want to know how much your repayments are going to be. Your income and that of any co-borrower is used to determine how much you can borrow. Your commitments are made up of all your current debts which may include existing personal loans, store and credit cards and hire purchase agreements.
Banks can now lend up to 97% of the chosen property value on owner occupied loans. This means that you will be required to contribute at least 3% of the purchase price as a deposit. You will also need further funds to cover costs which include legal fees, stamp duty, building and pest inspections, insurance and title searches.
If you are receiving a monetary gift to assist you in covering the costs, your bank will generally require these funds to be in your account.
The value of the property you intend to purchase will be determined by a lender ordered valuation. It is important to realise that this valuation may vary greatly from the vendors’ asking price.
Your Credit Rating
Your credit rating is all important when it comes to buying a home. Any lender you choose will check your credit history to determine your suitability for a loan. Your credit rating is determined by your savings pattern and your history of repaying and current or previous loans. You can obtain a copy of your credit reference report by contacting:
Public Access Division
Baycorp Advantage Business Information Services
PO Box 964 NorthSydneyNSW 2059
Phone: 02 9464 6000
Your Loan Interest Rate, Term & Type
One of the factors determining how much you can borrow is the interest rate. The higher the rate the more your property repayments will be. Conversely the lower the interest rate, the lower the repayments.
Remember: A longer loan term will reduce your repayments. A shorter term will save you interest. Any asset you own such as shares or equity in property may be considered as security for your loan!
Using Assets As Security
Any asset you own such as shares or equity in property may be considered as security for your loan.
Your Lifestyle and Living Expenses
A critical self-analysis of your lifestyle and living expenses will help you determine the affordability of your expected repayments. Your lender may not necessarily agree with your own assessment of your ability to repay. Your lender will take into account a minimum amount for your living expenses.
Associated Costs of Buying & Selling
There are a number of costs, which must be taken into consideration when buying or selling property. These costs will add considerably to the total cost. These extra costs include stamp duties, legal fees, search inspections, rates and insurances.
Is a State Government fee, which varies from State to State. Your local stamp duties office or legal advisor will inform you of available charges. When purchasing a property, 2 types of stamp duty apply:
1. Stamp duty on the property, which depends on the cost of the property purchased
2. The stamp duty on the mortgage that depends on the amount borrowed.
Conveyancing is the primary legal cost, that is the cost of transferring the property from one person to another. Costs vary from State to State and whether you use a solicitor, conveyancer or settlement agent. Who can all give you a cost estimate. Conveyancers can also be done on a do-it-yourself basis.
Searches and Inspections
1. Building and structural inspections
2. Pest inspections
3. Title searches
You should ask your legal representative what searches and inspections need to be carried out.
As a general rule, do not exchange contracts to purchase property until all searches and inspections have been carried out. It may be possible in some cases to carry out searches and inspections between exchange of contracts and a cooling off period if a cooling off period applies.(Check with your legal representative)
All council and water rates become your responsibility once settlement has been finalised. Any rates paid in advance by the previous owner must be reimbursed by the new owner. You will be advised of any of these costs by your solicitor or conveyancer.
Body Corporate Fees, Sinking Finds & Liability
Be aware when purchasing Units, Townhouses and similar properties that you will be required to contribute to a range of associated costs. These include Body Corporate fees, contribution to Sinking Funds and Liability Insurance. As insurance requirements vary from State to State, your are advised to consult your legal representative as to the type of cover required.
Lender’s Mortgage Insurance
Lender’s Mortgage Insurance is usually required if you borrow more than 80% of the purchase property value. This insurance protects only the lender not the borrower against default on loan repayments and any subsequent loss incurred by the lender when selling the property.
Do not confuse this type of insurance with any other. The borrower is not covered in the events of death or injury and the loan is not paid out. Neither does this insurance cover the borrower against illness or unemployment and should not be confused with Life Insurance or Mortgage Protection Insurance.
The Light at the End of the Tunnel
You have had your loan approved and found a property you are happy with. What Next? With the help of your legal representative, you are almost at the end of the process.
Firstly, agree on a price and pay a “Goodwill Deposit”. Remember paying a Goodwill Deposit does not secure the property. A contract for save only become binding once contracts are signed and exchanged. If you have not already done so, arrange for any necessary searches or building and pest inspections to be carried out as soon as possible. If buying at Auction, these checks must be carried out before the Auction.
If you are satisfied with the result of your inspections, you can then instruct your Solicitor/Conveyancer to exchange contracts. At this time you will be required to pay the balance of your deposit which is usually 10% of the purchase price. Ask your legal representative if you have a cooling off period in which you can get out of the purchase. Be aware that there is no cooling off period when purchasing at Auction.
Now you are on your way to owning your new property!!!
This general information is intended to be used as a guide only. Its purpose is to give intending purchasers an overview of steps required, from selecting a property through to obtaining a loan and completing the purchase. Please be aware that individual circumstances may vary.
If you have any questions, please contact Able Home Loans for loan solutions tailored to your individual requirements.