Your complete guide to buying an Australian property.
Buying a home or investment property is a massive step both financially and emotionally. It can seem overwhelming at times. However, if you break the process down into manageable steps, it will be much easier. Use this guide to help you manage the buying process.
STEP 1: DETERMINE HOW MUCH YOU CAN AFFORD
Before you start looking through listings on realestate.com.au in the hope of finding a fabulous future home or a investment property you must wok out how much you can afford. You will be better able to know how much of a property you can afford and if you can cover the ongoing expenses of owning a home. A self-audit of your finances includes these three steps:
- How much deposit do you have? Before you consider purchasing a property in Australia, you should make sure you have a solid deposit in place. You also need to have a "buffer" in case of unexpected expenses. These funds can help pay some of the initial expenses like a down payment and closing costs. Lenders will want to see that you have enough for the deposit and the closing costs and a buffer.
- How much can you afford to cover on top of the rent if you will be buying an investment? If buying a home to live in it’s important to know how much you spend every month. You also need to know exactly where your money is going. This step is essential for calculating how much of a mortgage payment you can afford. Make sure to account for all of your expenses, including everything from utilities to groceries and clothes to car expenses and credit card repayaments. Count retirement funds, regular savings, entertainment, and kid’s activities.
- How is your credit? To qualify for a home loan, you will need a good credit score, a solid history of paying bills on time, and a debt-to-income ratio (DTI) of about 43%. Lenders usually consider the ongoing expenses of owning a house to be about 1/3 of your monthly gross income.
STEP 2: FIND AN AUSTRALIAN PROPERTY BUYERS AGENT TO REPRESENT AND ASSIST YOU
In the USA most people work with a Buyers Agent when purchasing a home. They are your representative and will look out for your best interests. In Australia, until recently, buyers had no choice but to deal only with the seller's agent, an agent who was employed by, and paid by the seller.
A Buyers Agent will help you find homes with the features you want, help you get showings, and help you make offers and negotiate. The seller pays their own agent a commission, meaning the selling agent is always working against you, the buyer.
Real estate Buyers Agents know how the process works and offer their help as you work through the steps of making the purchase. Some of the ways a Buyers Agent can help you when purchasing a home include:
- Knowledge of Market Trends: Agents identify home value trends, buyer demand, the overall state of the market, and new developments.
- Price and Value: An agent knows what a home is worth and can help you with a reasonable offer price.
- Negotiations: They will know when a lower price is appropriate and argue to negotiate prices based on repairs needed or other contingencies.
- Insider Tips: An agent is familiar with localities and can offer tips about schools, neighborhoods and how those may influence property value.
- Professional Recommendations: If you need a lender, contractor, lawyer, or another vendor, an agent will make referrals. They have a network of qualified professionals on call.
- Experience: The agent is familiar with the process and brings their expertise to the table to help handle the process and oversee paperwork to ensure you stay ahead of due dates.
STEP 3: OBTAIN A PRE-APPROVAL FOR A MORTGAGE
Getting a pre-approval from a lender removes a lot of the hassles from the home buying process. Your lender will provide a pre-approval letter stating how much you are approved for. This will be based on your credit standing, income, and present assets. The pre-approval letter will help your agent find homes within your budget and proposed loan amount.
STEP 4: START VIEWING PROPERTIES WITH YOUR BUYERS AGENT
The agent will recommend properties that have the features you want and are within your budget. Don’t get discouraged if you don’t find the perfect match right away. You may need to look at many options before finding the one that is right for you. Most of the time, the agent will have a handful of homes for you to preview to see if you like them or not. Be patient; your agent will help you find what you want. Your buyer's agent will also have access to "pocket listings" and properties not publicly advertised through their extensive network of realtors, mortgage brokers, solicitors and private contacts.
STEP 5: MAKE AN OFFER
Once you are sure of the property you want to buy, work with your Buyers Agent. They will help you negotiate an offer based on the fair market value of comparable homes in the same neighborhood. When you and the seller agree on a price, you pay a deposit while the home buying process gets completed. Don’t get discouraged if the offer doesn’t work out. Sellers have the option of rejecting or accepting offers. Sometimes, several offers are made until successfully closing on a home. Once you make an offer, several things can happen.
- The seller may accept the offer, and you’ll begin the process of finalising the paperwork to complete the purchase.
- The seller may reject your offer.
- The seller may counter back with another offer. They may not like the price or some other part of your offer. They will request changes and then accept the amended offer.
STEP 6: SCHEDULE A BUILDING AND PEST INSPECTION
Your Buyers Agent will know qualified building inspectors, you can hire them to conduct the inspection. Having the home inspected will give you a better idea about the inner workings of the home. After the official inspection, you’ll be given a detailed report with the findings. Discuss these with your Agent. If there are issues found that are more than just a cosmetic problem, negotiations can be reopened. The seller can be asked to fix any issues before closing on the house. Sometimes, they will give you credit so you can make the repairs after you have made the purchase.
STEP 7: COMPLETE THE FINANCIAL PAPERWORK
Once the seller accepts your offer, you will work with your lender to complete the mortgage paperwork. The lender will usually request an independent valuation of the property. This step protects both the lender and you. It’s important to ensure that you are getting a fair price for the home. Three things can happen after the appraisal.
- The valuation matches what you offered, and the lender will clear the loan so you can close on the property.
- The valuation is more than what you offered. This seldom happens, as valuers tend to be conservative, but if it happens it means you’ll have instant equity.
- The valuation comes in below your offer. This can happen with new developments especially.In this case the lender will not approve the full amount of the loan. You will need to make up the difference or try to renegotiate with the seller to get a better price if it is a seconary market purchase.
Once the lender approves your loan, they will arrange for their solicitors to handle the paperwork. They will check to make sure the seller has the right to sell the house. Once the title search has been completed, you will pay your down payment and closing costs. Then you will sign your mortgage and get your move-in date.
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