Settlement Guide

Settlement Guide: how to purchase property?

Source: AAP

Escalating property prices in Australia's major cities are making it difficult for first home buyers to get into the market. Knowing how to budget and doing your research can help remove some of the stress.

Buying your first home has never been easy. Australia's record property prices have made the path to home ownership even harder. Pragash Santi, director of Santi Finance, has been providing mortgage advice to property buyers for more than 16 years. He says his Sri Lankan parents taught him that saving money for a home is all about making the right choices.

"Best place to start, is to set up a budget for yourself."


"Best place to start, is to set up a budget for yourself. Do you really need to buy a lunch at work every day or can you take lunch maybe 20 days in a month and maybe treat yourself once a month? Do you need to go out for dinner with your friends every weekend or maybe invite them to your house? People need to conscientiously make some decisions and it's not  short term one or two months - traditionally, a mortgage you have for 30 years, and if you are smart and work at it, you can pay it a lot quicker but you need to keep that focus."

"Generally, a deposit of 10 per cent of the purchase price is required when buying a home."


Pragash Santi suggests having photographs of your ideal home in order to keep your mind focussed on the task of saving a deposit. He says generally, a deposit of 10 per cent of the purchase price is required when buying a home. However, buyers can avoid paying extra thousands for lender's mortgage insurance if they save a deposit of 20 per cent.

"Once the deposit is saved the next step is to secure a pre-approved loan."


"It's not just the 20 per cent deposit but you also have other costs involved in purchasing a property such as stamp duty and legal fees, so you need to take into account all those other costs as well. Of course not everyone can come up with the 20 per cent; potentially you could look at what they call parental guarantor or someone else in your family or maybe a brother or sister that can help.  And then in a few years, when the property value has gone up, you can take the property guarantee off the title."

Once the deposit is saved the next step is to secure a pre-approved loan.

 

"First-home buyers are eligible for a government assistance program."


"Start talking to your bank or alternatively, you can talk to a mortgage broker to get a pre-approval. So it kind of gives you a budget. Pre-approval means, basically, the banks have ticked off your income, your debts and everything else and they looked at your scenario and are saying, OK,   we can give you X-amount of money, so that gives you a budget to now seriously go out on the weekend and do your property research."
 

First-home buyers are eligible for a government assistance program commonly referred to as 'first home owner grants'. The application process is similar across Australia, but there are differences between the States and Territories when it comes to the amount of money you can receive. Pragash Santi says developers might also offer a helping hand.

 

"Inspect a wide variety of properties to get a feel for what's on the market."


"If it's brand new, some of the developers have incentives like they will cover the stamp duty; they will throw in some extra cash or some other things, so it is well worth investigating."


Pragash Santi advises buyers to inspect a wide variety of properties to get a feel for what's on the market.  
They should create a check list of what they want from a property, photograph properties they've viewed and write down what they did and didn't like. He also suggests talking to neighbours to get additional information the agent might not provide.

"It's wise to spend money on a building and pest inspection to ensure the home is not infested with white ants or structurally unsound."

"Talk to the neighbours, you know, if you walk around apartments you see the neighbours just to get an understanding what kind of people live there, whether, you know, you are going to fit into the environment. It might be noisy, it might be mostly renters and not owner-occupiers - so you want to do your research apart from just talking to the real estate agent. Because, remember the real estate agent's job is to get the highest price for the vendor, so he's not on your side."

 

"It is important to get a good conveyance-solicitor who'll check all these things and don't cut corners, unless you are specialised in that area."


It's wise to spend money on a building and pest inspection to ensure the home is not infested with white ants or structurally unsound. It's also good to use a conveyance to help with Strata Title searches, council building certificates, drainage diagrams and documents from the State Traffic Authority and Water Board. Pragash Santi advises to engage a solicitor to handle the exchange of contracts during settlement.

"That's why it is important to get a good conveyance-solicitor who'll check all these things and don't cut corners, unless you are specialised in that area. My advice always is to get the specialist. It might cost you some small amount now but it will save you a lot of heartache and money in the long run."

 

"Control your emotions at auctions and you don't go over your budget."


Buying at auction can be daunting, so, it's good to be clear about how much you can spend. Contracts exchanged at auction are unconditional, and, once signed, binding on both parties. Pragash Santi says, during the heat of the auction, it's important not to get carried away.

"The deposit, which is usually 10 per cent of the purchase price, will be held in trust until settlement occurs."


"Control your emotions and you don't overstretch yourself. Don't go over your budget and if you think you can't or if your partner is going to push you, take someone else along with you to make sure that you don't suddenly put your number up when you know that you are well above your limit. It might just sound like five thousand and another five thousand but it adds up and suddenly you know you are 50 thousand over your limit."

 

"The next step is to organise insurance cover to protect your interest in the property."


A property is said to be 'knocked down' when the final hammer falls at auction. The successful bidder is required to sign the sale contract and pay a deposit. The deposit, which is usually 10 per cent of the purchase price, will be held in trust until settlement occurs. The next step is to organise insurance cover to protect your interest in the property - and start celebrating your new home!

The Federal Government's website is a good starting point for people planning to buy a property.

The Australian Securities & Investments Commission (ASIC) provides useful information for home buyers.
  
Budgeting advice is being provided by Consumer Affairs Victoria and Fair Trading NSW offers a list of topics for home buyers.