It’s the million-dollar question (well, in some parts of Sydney, more like the multi-million-dollar question): how on earth do I buy a house? Perhaps you’ve gone along to a few local auctions for a sticky beak or popped some bubbly with friends at their housewarming, but have never been quite sure of the chain of events that led to that cork sailing over the back fence. Here, we’ll break down the process of getting your very own shiny set of house keys.
In our property-obsessed world, it’s not unusual to spend your commute scrolling through real estate apps or talking house prices with Darren from finance while you’re waiting to use the office coffee machine. But just like dating, there will come a time when your casual swiping becomes a little more serious and you’re ready to make a commitment to ‘the one’ – your dream house.
First things first. While you might be tempted to start punching numbers into that online home loan calculator, remember they’re not always an accurate predictor of what your lender will actually give you or what you can feasibly afford for the next 20 to 30 years. At this point, it’s probably a good idea to consult a mortgage broker, who can break the numbers down in more detail and give you some insider intel on how lenders will review your income, assets and capacity for repayments.
From here, it’s time to get pre-approval (sometimes called conditional approval or approval in principle). This is basically where your lender has said they’ll go on a date with you but isn’t signing up for the life-long commitment of marriage just yet – they’re simply agreeing to lend you the money in principle.
Pre-approval isn’t compulsory but is useful for many reasons. It lets you know the maximum amount you’ll be able to borrow (so you can adjust those price filters on your app and not get your heart set on something outside your budget) and gives you more confidence during the buying process. It will also give potential sellers heart-eye emojis – it shows you’re serious about buying and that your offer is less likely to fall through due to lack of financing.
Just remember that pre-approvals aren’t a free for all. They’re recorded on your credit file as a loan enquiry, so snapping up a lot of them in a short space of time could ring alarm bells for lenders.
What’s the difference between private treaty and auction?
OK, you’ve got your pre-approval sorted and are ready to make an offer. Typically, house sales happen in one of two ways: auction or private treaty. While auctions tend to get all the airtime in media coverage of the property market, most Sydney homes actually sell by private treaty.
A private treaty is where a seller names their price and then begins negotiations with prospective buyers (that’s you). Once you’ve agreed a price, the contract for sale will be provided to both parties and will be activated once you exchange signed contracts and the buyer has paid the full deposit, which is usually 10%.
While it might feel like it all gets very real, very fast, the contracts for a private sale do include a cooling-off period of five to 10 days in case you change your mind. You can also use this time to get your finance formally approved – that is, the bank is going to put a ring on it and lend you the amount you need.
The cooling-off period is also when you can go and get any formal inspections or reports you need – such as pest and building inspections for a house, or the strata report if you’re buying a flat or townhouse.
Just like you’ve seen on The Block, auctions are a public sale where potential buyers come along to bid against each other for the property. However, before you rock up on the day and start giving the evil eye to your competition, there are a few things you need to take care of ahead of time.
Unlike private treaty, if you’re the highest bidder at the auction you will be expected to exchange contracts there and then, as well as putting down your deposit (usually 10%). There’s no cooling-off period, so if you don’t complete the sale you risk losing your deposit.
Therefore, pre-approval just ain’t gonna cut it if you’re buying at auction – your home loan needs to be unconditionally approved already. You also need to make sure you’ve done your research and obtained any necessary inspections or reports before auction day, as you won’t get the opportunity to do these after the hammer comes down. Finally, give your solicitor or conveyancer a buzz to review the contract and ensure you’re both comfortable with its terms well before you raise your hand at auction.
Completing the transaction for a private sale
Contracts for sale can differ from state to state, but in NSW there is a standard six-week period from when you first sign on the dotted line to when that shiny set of keys becomes yours (settlement day). The cooling-off period is included in this time, so once you’ve chewed up that five to 10 days you’ve got just over a month left to actually complete the transaction.
At this point it’s over to your solicitors, who will go away and do all their research to make sure there’s nothing affecting the property. For instance, if you’ve bought in the Inner West, they’ll let you know if the tunnel to the WestConnex is running under your house and what the implications are, so you don’t get any nasty surprises down the track.
Meanwhile, your mortgage broker is documenting the loan and getting you to sign all the loan documents. Your dream house is so close you can smell the new paint in the hallway!
Before you know it, six weeks is up and the day of settlement is here. This is when you get the keys and start calling all your mates to see who’s available to help you move (what do you mean, everyone’s busy that weekend?!)
On settlement day, you’ll go in and do a final inspection – this is your chance to check the property again and make sure the vendor hasn’t left anything lying around that they shouldn’t have (like the body of a car in the middle of the living room… it’s been known to happen!)
Once the final inspection is done and dusted – no car parts to be found – then settlement is finalised between your solicitor and the seller’s. You are officially a homeowner!
Life as a homeowner
The ‘sold’ sign has come down, your furniture is in place and the barista at your new local has memorised your coffee order. As you settle into your new home, it’s a good idea to give your new home loan some time to settle too. Give yourself a year or two for your mortgage to find its groove and understand how it works with your budget and lifestyle.
Those first few years will also determine how you can cope with having regular mortgage repayments coming out of your account while still weathering the inevitable storms we all face at one point or another, from unexpected life events to unforeseen expenses.
And if at any point you’re not sure that your original mortgage is still right for you? Your mortgage broker will be able to help you weigh up your options and ensure the decades to come in your new home are happy ones.
The material on this website is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances, and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.