Friday Q & A – How can I buy a place?
How can I buy a place?
This is a broad question that I’ll break into two areas:
How do I get the finances to buy a place?
What’s the process to buy a place?
So, how do I get the finances to buy a place?
Determine why you want to buy a place, the alternatives and a budget. In most instances to buy a place, you’ll require a deposit and a home loan so to help determine your budget have a good look at your savings capacity and borrowing capacity. To determine your borrowing capacity, you can do an online calculator that most banks offer or you could have an initial chat to a mortgage broker. It’s important to point out that just because a bank or a broker tells you that you can borrow a certain amount doesn’t mean you should.
Save a deposit. This is by far the biggest thing stopping most from purchasing property as it’s difficult to save for a deposit with the cost of living and whilst renting in many cases. In most cases, you’ll need a 20% deposit to purchase a property which seems enormous, particularly if you’re in a capital city where rent is also high. There are scenarios where a lower deposit will be sufficient however this will likely require a guarantee on a parents property or incur additional costs unless you’re a professional like a doctor, lawyer or accountant. In the absence of assistance from a family member, the only way to save your deposit is to maximise your income, lower your expenses or increase the risks you take with investing your funds. I find the biggest thing someone can do to maximise their savings for a deposit is to lower their expenses as it’s the area you have the most control over. You should have a good understanding of where your money is going, figure out what’s important to you, what you’re willing to sacrifice and cut-out any wastage. The biggest expense for most people is rent so if you can reduce that you can really supercharge your savings. Possible ideas to reduce your rent is to move to a cheaper location or property, find a housemate/s, house sit or… move back with your parents.
Once you think you’ve saved enough of a deposit and you think you’re ready to buy and have the income to do so, you need to find a lender. You can do some research online at sites like Canstar, Finder, Ratecity etc. or you can find a good mortgage broker online or get a recommendation from a friend who can help you find the best mortgage for you and help you apply.
Once you’ve found a loan or broker, you’ll need to get pre-approval. Not all pre-approvals are created equal so it’s important you get a reliable one that may require a full assessment. This is even more important if you’re buying at auction.
Now you’ve got your finances in order, you’re ready to buy a place.
So, what’s the process to buy a place?
Find your ideal home that’s within your budget. This is normally done on sites like realestate.com.au and domain.com.au and you can then get in touch with the agent, find out about viewing times and price guides. It’s also a good idea to get in touch with a few agents in the area you’re looking at buying and letting them know of your intentions and what you’re looking for as they can get in touch right away if something is coming onto the market. It’s important to acknowledge that real estate agents work for the vendor (current owner) so make sure you do your own research and take everything they say with a grain of salt as they’re obviously trying to get the best result for their client.
Once you’ve found a house you love that you think is within your budget, you’ll need to do some research of what it’s worth prior to making an offer. To do this, have a look at comparable sales in the area recently, find out when the last time the property was on the market and how much it sold for and there are lots of places online that give price guides and property profile reports.
Next, you’ll need to organise building and pest inspections to have confidence there are no faults with the property. These can cost around $500 and although is a large expense it could potentially save you tens of thousands if something came up after you purchased the property and found out there’s a fault. It’s also important to recognise that if there are faults on the property. Don’t feel committed just because you’ve spent $500. Property can be emotional and no one likes to waste money but again, a $500 loss could be cheap in comparison to purchasing a faulty property that’s going to cost a lot to repair and the purchase price doesn’t entirely reflect this. Some properties allow a cooling-off period when not sold at auction which can give you time to organise these after you exchange contracts but depending on your state, you likely will forfeit an amount e.g. 0.25% in NSW.
Get legal assistance to go over the contract of sale to make sure you fully understand the terms and conditions prior to making an offer.
Once you’ve done your research on how much you think the property is worth, it’s time to make an offer. If the property’s not getting sold at auction, you do this by liaising with the real estate agent. The offer amount is a tricky amount as there’s often an unknown of what other buyers there are and what the vendor’s willing to accept. A place to start could be a certain amount under the asking price however it’s usually advised to not offer something silly as this could make the agent and owner think that you’re not serious and you could lose out to a buyer with a higher offer. If the property’s getting sold at auction, you do this by registering prior to the auction and make bids without exceeding your budget. Once the bidding exceeds the reserve price, the auctioneer will announce it and if you’re the winning bidder, it’s all yours. You’ll also have to speak to the agent beforehand to understand the deposit amount and payment options on the day.
Paying the deposit and exchanging contracts. Generally, a 10% deposit is required to be paid however it can be different if negotiated. In most cases, the solicitor or conveyancer representing each party will exchange contracts. The deposit can usually be transferred, cheque provided, bank cheque or even a something called a deposit bond can be used.
Organise home insurance at the time contracts are exchanged to mitigate risk and the lender will generally require this at settlement anyway.
Organise conveyancing with a solicitor or conveyancer to assist with the transfer of property title. You can DIY this but is generally best to employ someone to avoid any costly mistakes.
Wait for settlement. The conveyancer will do all of the legal work and checks and settlement is usually 6 weeks after contracts are exchanged but can be sooner or longer. If there are issues, there could be an extension for settlement but the vendor does not have to grant an extension. At settlement, you and your representative meet with the vendor and their representative to pay the outstanding purchase price (plus costs like stamp duty) and swap the title.
Move in and enjoy!
There’s a lot involved in researching and buying a property so if you don’t have the time or knowledge to confidently purchase a property it could be an idea to employ a buyer’s agent or advocate who can help you with your research, find a suitable property at the right price and even negotiate or bid at auction. These people do this every day so their expertise can be invaluable and pay for their fees many times over. More information can be found here.
The above is just an overview and there’s a lot of steps involved and as purchasing property almost certainly will be the biggest financial transaction you make in your life it pays to do your research. Luckily there are lots of great resources online, podcasts, assistance available and don’t hesitate to ask any questions if you’re not 100% sure of anything during the process.