The property purchase process
Determining your borrowing power
Purchasing your dream home or investment property can be an exciting process but there are a few things you need to look at carefully.
The first thing you should do is determine how much you can borrow. That will determine the maximum purchase price you are able to pay. To do that you need to establish what you currently spend each month, what your financial ambitions are and what you can comfortably afford to pay each month in home loan repayments. Use ASIC's budget planner to work out how much you really spend.
Obtaining a pre-approval with a suitable lender before seriously looking for your property is preferable as you will be in a much better position to negotiate with real estate agents. In a busy real estate market the first thing many agents ask " Have you got a pre-approval".
Your broker will be able to assist with determining your realistic borrowing capacity taking into account your personal situation and the various policy guidelines that lenders use.
Finding your home
Once you establish what suburb or town you want to live in or have your next investment property in, you should contact the local real estate agents and let them know what sort of property and what price range you have in mind. Another obvious source of research is on the internet. Nearly all properties for sale, both private sales and agents listings, are now on real estate websites. If possible you should physically look at as many properties as possible to get a good feel for the market and what you should offer when that "must have" property comes along. A good source of property values is Home Price Guide - http://www.domain.com.au/property-profile
A number of inspections may well be recommended once you have found your new property. The normal inspections include pest and buidling and if your new property is a strata tiltle unit or townhouse, a strata inspection. Some people get the inspoections done prior to making an offer and others prefer to make an offer and if accepted will then arrange for the inspections. Doing it this way can reduce the costs as the vendor may not accept your offer and you have already paid out for the inspections.
It may be advisable to get a survey of the property depending on the layout of the buildings or boundaries.
Making an offer - paying deposit
Private treaty sale
After finding your new home and decide how much to offer, simply contact the agent and put forward your offer - the amount and any conditions you wish to include such as a delayed settlement or early access to the property. Don't offer the maximum you are prepared to pay to begin with (unless the market is quite hot and you fear that you will lose the property if you don't).
If your offer is accepted there are 3 possible ways to put a deposit on the prperty. The first and most common (especially in a hot market) is by signing the contract of sale and paying a non-refundable deposit of 0.25% of the purchase price (e.g. $400,000 purchase price - deposit will be $1,000). A cooling off period of 5 business days automatically applies unless it is waived. If the cooling off period expires or it is waived you are legally obligated to complete the transaction unless other provisions apply. We suggest that a 10 day cooling off period be sought having regard to the time frame to obtain formal approval on your loan application.
A deposit of 10% of the purchase price (less any holding or 0.25% deposit already paid) is due and payable when the cooling off period expires or if the cooling off period is wavied upon signing and exchange of the contract. The deposit is typically paid and held by the agent (in their trust account) on behalf of the vendor until settlement when it will be transferred to the vendor. On occasions, vendors will accept a 5% deposit or a deposit bond in lieu of the standard 10% deposit. A deposit bond will cost 1.2% of the guarantee amount (e.g $20,000 deposit x 1.2% = $240)
Buying at auction is a little different to a private treaty sale. There is normally no cooling off period and you will be required to pay the 10% deposit on the fall of the hammer. So you will need to have sufficient funds for the deposit or have a deposit bond that can be used at auction (there are different types of deposit bond). Therefore it is essential to have your finance arranged by way of pre-approval or condtional approval prior to auction day.
All reseach and inspections need to be undertaken prior to the auction date as there is no leeway to do it after.