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Want to buy your dream home?
Property
Just like many other things the Australian property market goes through cycles. It wasn’t always so. Until fairly recently there was only one way – property prices went up, caused mainly by inflation. Nowadays, property prices rise and fall according to economic factors, such as inflation, demand and interest rates. Also, and very importantly, in places where property prices are very high, how much people can afford to repay on their loans from their income has a big bearing on prices, known as the Affordability Index. This basically tells us where prices are in relation to the public’s ability to borrow and repay money. In some cities prices have reached a level where the properties are unaffordable, according to the index, because the average purchaser cannot borrow enough money to complete the purchase. First homebuyers in these cities are well aware of this.
Prices don’t necessarily go the same way in all states at the same time. Recent history shows us that properties in some states may be increasing in price while in other states values are decreasing. It is essential that you have a good idea of what is happening and what might happen in the future in the location you intend to purchase.
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Types of property
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There are many types of property. Here are a few of the common types of residential properties: House, Dual Occupancy, Semi, Duplex, Triplex, Unit (apartment), Townhouse, Villa, Terrace etc. Houses generally have a land title which entitles the owners to sole use of the land and the improvements within the boundaries. This is usually a Torrens title or an Old System title. Where parts of a property have common areas to be shared by all tenants most other titles usually designate and describe, for example, a unit number and garage, carport etc as being for the sole use of the person named on the title however all common areas are to be “shared.” No common area is individually assigned to any unit. These properties will usually have a “strata title.” Other types of titles are Company Title and Community Title. It is important to understand what you are buying as some types of title might impose restrictions and some titles, particularly strata titles, may incur expensive monthly or annual levies, payable to the body corporate.
Properties can be bought in a number of ways depending on how many purchasers there are and whether or not the purchasers are to be individuals solely, together or separately, or through a company or trust. Most properties are bought in the names of individuals and these names are entered on the land title as the owners of the land and the improvements thereon. It is important that careful consideration is given to how the property is purchased if there are two or more purchasers. Properties may be purchased in different ways. Husbands and wives usually purchase as joint tenants, which means that upon the death of one of them the property automatically passes to the surviving party. It cannot be willed. If there are three or more parties the purchase will be made as Tenants in Common. This means that each party owns a certain share of the whole property, say 50% or 20%, and his/her share can be separately sold off or willed to someone. This option is available to two people as well.
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The steps to buying your property |
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Here are the first steps to locating and buying your home. If you attack it professionally and methodically and don’t rush you are certain to achieve a better result than if you go in unprepared. Remember your goal is to buy the best home for the lowest price. Plan carefully and do your homework. Before you can sensibly do anything you must know how much money you will have to purchase a property and the costs associated with buying it. This depends on many factors and I will tell you about these in a moment but you can quickly gain an idea of the maximum loan you may be able to borrow by using our calculator and entering your annual income and the likely interest rate into the calculator. We will quickly tell you how much you can borrow. Add this to the savings you have and your First Home Owner’s Grant, if applicable, and any cash gifts you are lucky enough to receive from your family, and you will have an estimation of the total amount you have to spend on your home and to pay the set up costs.
You can now seriously look for your home so where do you start? Research the market. Do not wander into weekend home opens and make an offer on the first place you fall in love with. You will find plenty of information available on-line, in local newspapers and in the sales magazines available at all real estate offices. Remember these are properties listed for sale and have not yet sold so they are asking prices. You would expect to pay less than the asking price but not in all cases. There are two ways to purchase a property listed for sale – by Private Treaty or by Auction.
Private Treaty
With Private Treaty sales, in some states the owner will provide a contract for the sale of the property and the purchaser will then “exchange contracts” ie offer to buy the home at an agreed price. In other states, an Offer and Acceptance will be completed by the agent and then signed by seller and purchaser.
Auction
Auctioning of properties is very common in some states so you should familiarize yourself with the process. If the property is for sale by auction you must register as a bidder.
If you buy at auction you will possibly pay more than the figure the agent indicates. Agents sometimes give a ballpark figure lower than the likely reserve price, to attract more bidders and interest in the property. If you intend to bid at an auction you should attend a number of prior auctions so that you can get the feel for the procedure and so that you don’t feel intimidated when your turn to bid comes. You should obtain a copy of the contract from the agent and satisfy yourself to the terms and conditions of the sale. Your solicitor can help here. Vendors will usually look at offers prior to auction so ask the agent if you could make an offer.
You can obtain a good understanding of the value of properties in your area by subscribing to some on-line sources such as RP Data or Residex. There is a fair amount of free information on their websites and via their emails and you will be able to buy reports by postcode, showing anticipated future property prices and rental returns for your suburbs.
Start your research in the knowledge that it could take a while and that you are prepared to pass over properties until you thoroughly understand the market. Not only should you research prices but you should make a comprehensive checklist of every property that you inspect that may fit the bill. You should record what the house/unit comprises of, its condition, anything that may need repair or replacement and the location. Check to see if any additions or renovations that have been done comply with council requirements and that approval was obtained. Is it a good street to live in? How far to shops and schools etc? Is there a bus or a train service? You should also check for building or usage restrictions such as easements and encumbrances over the property, put there by the council, water board or other government bodies. There are many good books available to guide you on all these things at your bookstore. Of course you should obtain a Building Report from a qualified building inspection company. This will answer most of your concerns about the building and the report will be required by many lenders.
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The buying process
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Once you have done your research and you are ready to make an offer, before doing so you must be certain that you can afford to pay for the property and the set up costs. This entails being sure you can borrow the money and then following the steps through to settlement.
The first thing to do, if you haven’t already, is be certain about your finance. You must know that the lender will provide all of the money and settle on the required day. How do you do this? Well it is simple. Decide where you will borrow the money and make contact. Iden Money will give you a letter showing the amount we will lend, subject to a number of conditions which you must fulfill at a later stage. These conditions will usually include such things as:
• You providing sufficient monies in addition to the loan to settle the purchase and to pay all set up costs (discussed later)
• The lender obtaining a satisfactory valuation
• You providing satisfactory building and pest reports
• Other conditions specific to your application and security property
Once you are confident that your loan will be approved, you are ready to buy the home and satisfy the stated conditions. If the sale is by Private Treaty you can now make an offer through the agent. In Queensland, New South Wales, Victoria, South Australia and the Northern Territory, if it is accepted you must sign a contract to purchase. You will need a Solicitor or Conveyancer (you should pre arrange this) to read the contract and to negotiate any onerous conditions within. Once agreed you must then pay the deposit, usually a nominal sum of .25% of the purchase price, to the agent. Your solicitor will then act on your behalf right through to settlement. Unless you have agreed to waive it, the contract will include a “cooling off” period, often for 3 or 5 business days, commencing from the day you sign the contract, but can be varied by agreement. This “cooling off” period is allowed so that you can obtain such things as pest and building reports and the lender can obtain a valuation and unconditional approval of your loan. If something doesn’t stack up, or you simply get cold feet, you can withdraw from the purchase or request more time. Once you have decided to proceed you must pay the remainder of the deposit, usually up to 10%. You must fully understand when the cooling off period expires and check with your lender to ensure unconditional approval can be given within this time frame. This is essential if the property has a number of suitors. Vendors won’t wait and you could be “gazumped” ie the vendor agrees to sell you the property but then accepts another offer before you exchange contracts.
In other states you can make your offer “subject to finance” within a certain number of days. If the finance is not approved the sale lapses. This is in effect the “cooling off” period. Once you have signed a contract, time is of the essence, so it is important to get on your bike and get these things finalised.
You will now have a number of things to do prior to settlement. The lender will require evidence of a comprehensive insurance policy over the property. You will need to contact such people as the water board, energy provider etc and if you intend to move into the property, the Internet and Pay TV provider, removalist etc. You must also have a “pre handover inspection” just before settlement so that you are happy with the condition it is left in and ensure the vendor has left all agreed items. The agent will arrange this.
On the day of settlement your solicitor/conveyancer will settle up for you with the vendor’s solicitor and your lender. You can go along if you like. Just after that, you should be able to pick up the keys from the agent. Congratulations.
If you are thinking of purchasing your own home now, make sure you order a copy of our free report Unlock Your Dreams, the A-Z of making good property decisions and obtaining the right home loan for your needs. Iden Money can help you unlock your dream. Call us on 1300 334 336 or send us an online enquiry.
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