Knowing exactly how the purchasing process works is crucial to ensuring you are staying on track and aren’t making any mistakes. There’s a lot to know about each step of the journey, and it’s easy for investors who don’t have the experience or knowledge to fall into some pretty nasty traps that will end up costing them big.
That’s why I’ve put together a quick and easy guide that will take you through the entire process, step by step, from finding your property, financing it, right through to the purchase and settlement.
Step 1: Determine Your Budget
How much can you afford to repay? What are your ongoing expenses? What is your total income and savings? These are all questions which you have to answer before setting out to search for a property. There’s no point inspecting properties that are way outside your price point – it will just waste your time and leave you disappointed.
Step 2: How Much Can You Borrow?
Once you’ve got a firm understanding of your repaying capacity and expenses, it’s time to calculate how much can you borrow. Visit a mortgage broker or a financial institution to determine your borrowing limit. You should also keep in mind the costs associated with purchasing a property such as stamp duty.
Step 3: Seek Government Subsidies
To encourage you to buy property, the Australian Government offers a number of different subsidies and rebates to people who meet certain criteria. The amount you are eligible for will vary from state to state, so it’s important you always check the most up-to-date information relevant to your location.
Step 4: Shop For A Loan
You’ve set your budget, worked out how much you can afford to repay, looked into potential grants and now it’s time to shop for a loan! I definitely recommend shopping around at different financial institutions, brokers and banks to find the best interest rate, type of loan and repayment structure to suit your circumstances.
Step 5: Research Market and Suburb Review
Do your homework before you start looking at properties so you can ensure you are getting the best market deals. Before you start any kind of purchase you need to be fully aware of all the properties available on the market, know the comparable prices on recent sales (so you know the asking price is reasonable), know the vacancy rate of the area (especially if you plan to rent the property) and do research on the growth and desirability of the area + type of property you are looking to purchase to ensure capital growth. This information will help you when it comes time to negotiating a price.
Step 6: Get Finance Approval
You’ve done your due diligence and worked out which loan is best for you – now it’s time to get it approved! Here you’ll need to finalise all documents and submit them to your broker. With most lending institutions, a pre-approval certificate will be provided to affirm your loan, the validity of which is 6 months to a year.
Step 7: Choose The Right Property
If you have pre-approval on your loan it means you are ready to get out there and find your dream property! The amount of your loan will help you determine what areas you can look to purchase in and what price point you need to be aiming for. Utilise your local newspapers (the real estate section) as well as sites like domain.com and realestate.com for pricing information (they have a sold section). Having a solid idea of what type of properties sell in your location for your price point will help you to narrow your search and find a property perfect for you.
Step 8: Property Inspections
Before you finalise your purchase, you need to make sure the property holds up under inspection. In other words, you need to make sure that the property is advertised and worth the asking price. The inspections I would recommend are Building, Pest & Stata. Of course, if it is an off the plan purchase you will not have the ability to undertake an inspection and will need to rely on the builder’s warranty for any defects to be rectified. In this case, you should still conduct thorough research of the land and surrounding area to ensure you are making a smart property choice. You should also review your contract of sale and get it checked for irregularities and clarify inclusions.
Step 9: Make An Offer
If you have reached this stage then you have inspected the property and determined that you are happy with it. Making an offer means negotiating. A few handy tips when it comes to negotiating:
- Don’t become emotional
- Don’t be intimidated by the agent
- Don’t spend more than you are able to pay
Step 10: Legal, Conveyancing And Loan Finalisation
Once you have the contract in hand, you should go through it with a fine tooth comb and counter any legal surprises you are not happy with. Conveyancing will follow, where the property title is transferred from the seller to the buyer. This is also the stage where you need to finalise your loan documentation if you are not buying the property outright.
Step 11: Contract Signing/Exchange
If you have found the perfect property, are satisfied with your investigations, have obtained expert advice, and have negotiated a deal with conditions that you are happy with, then you can go ahead and sign the contract documents.
Step 12: Presettlement
This is the last leg of the property journey and it’s by far the easiest! Here you’ll need to have your conveyancer prepare for settlement, sign all your bank documentation and of course agree upon the arrangements for settlement. You should also start thinking about insuring your property so you’re covered should anything ever happen! The waiting period usually lasts around 6 weeks.
Step 13: Settlement
At last, settlement day has arrived! The exchange of cheque for ownership and getting the keys is a simple joy – don’t forget to celebrate!
Have any questions about the process? Feel free to leave a comment below!
Until next time,
*This article was first published on The Property Investor – http://www.tpimag.com/list-maker/purchasing-process-101/