Owning your own home is the Great Australian Dream – however, if it’s your first time dipping your toe into the market, it can be a mystifying and confusing experience, involving many different professionals and a seemingly arcane legal process. So, here’s our five-step guide to negotiating the buying maze.
1. Laying the groundwork
First of all, you should set your goals. In order of priority 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 how much 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, all you do is 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? Make sure this is taken into consideration. Don’t forget to allocate money to a slush fund, 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.
2. Research mortgages
Once you’ve arrived at a ballpark figure of how much you can afford to borrow and how much you will need to have before you think about borrowing, it’s time to go loan shopping.
Enlist the help of a mortgage broker. They can suggest a wide array of loans that suit your needs. These home loan specialists will save you hours of time researching mortgages and save you money. The key benefit of working with a broker is that they minimise the risk and find the right lender for you. You might go directly to the bank and be declined because of their specific lending policies but what you don’t know is that another lender will happily lend you the money.
A good mortgage broker will sit down with you and ask questions about your situation (which banks will also do) but they will also ask a few more. Mortgage brokers have a wide selection of lenders (not just one) and will choose one or several options that meet all of your requirements. They also know that each lender has different policies and will match you to the right one. Brokers help you choose the most suitable lender, taking into account the best product and policy for YOU.
3. Find a property
Don’t leap headfirst into viewing properties: talk to family and friends about possible areas of interest for your first home, read property and finance magazines, newspapers, and subscribe to property reports and newsletters to collate data for the suburbs that you’re aiming for.
Contact real estate agents in your suburb(s) of choice and sign yourself up to their daily and weekly property alerts. Even though you’ve done your own research, it can be a good idea to ask each real estate agent what properties they have on the market in your price range. Sometimes poperties 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 and 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 for your conveyancer or solicitor and settle on a legal representative that you feel 100% comfortable around. The best way to do this is to get recommendations from 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. Make sure you know the location of the properties prior to inspection, and take a 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 as well as or better than the agent you’re dealing with, 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.
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 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 about the property for another reason. You’ll feel like the inspection was money down the drain, but think of it this way – what if you had only discovered that colony of termites after settlement?
5. Taking the plunge
If you’re satisfied the property is OK, then it’s then time to make your move. The price tag says $200,000. But how much do the vendors really want, or expect, to get? According to one agent, in most economic climates it’s usually 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 as yourself who knows when to stop. Within reason, you shouldn’t be afraid to make any reasonable offer. You want to get the best deal possible but don’t walk away from a property because of $5,000. If you want the property, take the final negotiation.
Once you’ve agreed on a final sale price for your property, get in contact with your broker and your conveyancer ASAP. Don’t sign a thing until your solicitor checks the contract between you and the vendor. If you are looking at purchasing at auction, ask for a contract well beforehand. You may want some special conditions put into the contract.
When your solicitor or conveyancer gives the contract the thumbs up, and you have the 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, obtaining removalists’ quotes and arrange building quotes on urgent repairs. Come settlement day, you and the vendor, your legal representatives and a representative of your lending authority will meet to exchange cheques, sign the mortgage and other documentation. Welcome to your new home!