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| A guide to buying your first home |
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Contact: Tina Doan
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A member of FindLaw’s editorial team wrote this article. If you need legal content or editorial services for your website please contact Huntly Gordon
For most of us, the purchase of a home will be the most significant investment undertaken in our lifetime. In addition to the numerous personal choices you face, like location, size and style, there are many legal and administrative requirements that must be complied with. However, there is no need to be overwhelmed by the home buying process. With a bit of planning and patience, the buying process does not have to cause too much stress. The NSW Department of Fair Trading and the Home Purchase Assistance Authority have provided some information to assist you in the purchase of your first home.
Finance
Probably the most important step in preparing to buy your first home is to organise appropriate finance. Before you apply for a loan, you should calculate what you can afford to pay each week in loan repayments. There is help available if you need assistance with budgeting or calculating your financial capacity. The Credit Helpline offers financial counselling and they can be contacted on 1800 808 488. Many of the major banks also offer budget calculators on-line that you can use.
It definitely pays to shop around for the best mortgage deal. As the number of mortgage providers in the market increases, there is a corresponding increase in competition. Being patient and doing your homework could save you thousands of dollars in the long term.
A few years ago, the credit laws were changed to provide greater protection for money borrowers. It imposes an obligation on loan providers to give you information that is clear and easy to understand and must include:
- Details about fees and charges in a pre-contractual statement and
- an information statement which outlines your rights and obligations
The pre-contractual statement must tell you:
- The amount of money you are borrowing
- The annual percentage interest rate
- How the interest is calculated and when it is charged
- The credit fees and charges to be paid or how they will be calculated
- How they will inform you of changes affecting interest rates and fees or charges
Once you have your finances arranged, it's time to begin the buying process.
The buying process
The initial deposit
Once you have selected a property that you are interested in buying, the seller may ask you to pay an initial deposit. This does not mean that the property will be held for you or that it gets taken of the market. It is more like a goodwill gesture, indicating to the seller that you are serious about the prospective purchase and may mean that the seller or agent will be less likely to show the property to anyone else. The seller is able to take initial deposits from other prospective purchasers as well but must refund your deposit if they choose not to sell the property to you.
Gazumping
Gazumping is the name given to the situation where you have a verbal agreement with the seller to buy the property at an agreed price and you pay a holding deposit, but the property is not sold to you in the end. This usually happens where the seller has decided to sell to someone to else for a higher price. As sellers are entitled to receive the best price for the property, unfortunately this may mean that you lose any money that you have spent on legal fees, inspection reports, finance application costs and inquiries. The reason for this is that, until you exchange contracts, there is no legal obligation on the seller to sell to you.
Building inspection
As the seller will not provide you with any guarantees as to the structural soundness of the dwelling, it is strongly advisable that a building inspection be undertaken before you exchange contracts. A property inspection checks the structural soundness of the property. The inspection report will indicate any visible quality defects and necessary repairs. There are many professionals with building-related knowledge who can do a building inspection and prepare a report, including architects, builders, building consultants and structural engineers. They can be found under "Building Inspection Services" in the Yellow Pages.
Pest inspection
While the building inspection should identify any visual damage caused by termite activity, it won't include the detection of termites and other timber destroying pests. That is why you should also have the property inspected for pests before buying it. This may be a requirement of the organisation that you have borrowed finance from.
Exchanging contracts
Exchanging contracts is an important step in the buying process. Up until the exchange of contracts, both you and the seller are entitled to change your mind without any legal consequences. The contract sets out the terms and conditions of sale. Any fittings that you are purchasing with the property, such as curtains, blinds, fittings, awnings, air conditioner or TV anttena should be listed in the contract to avoid disputes at or after settlement. On the date the contracts are exchanged, you will have to pay a 10 per cent deposit to the seller's agent to be held on trust account. You should not hand the deposit over the seller directly.
The cooling off period
Now that you are well on your way to obtaining your first home, it might be a good time to stop and reflect on your choice. Because the purchase of a home is such a significant investment, there is a period of time after exchange of contracts where you can still change your mind and cancel the contract. Perhaps some of the issues that you can consider in this period are: does it suit my needs; what are its faults; what are its features; and how does the price compare with other properties seen? Three States in Australia have this cooling off period and it varies between that different States. In NSW, the cooling off period runs for five working days. In Victoria, the purchaser has three working days while in South Australia, the purchaser has two working days. If you do exercise your cooling-off rights and withdraw from the contract, you have to forfeit 0.25 per cent of the purchase price to the seller. If you are absolutely certain the property is perfect for you, you can waive the cooling-period with the agreement of the seller.
Settlement
The final step before you receive the keys to your own home takes place at settlement. Settlement usually occurs between four and eight weeks after the exchange of contracts. During this time, enquiries and searches are made and documents are prepared by your solicitor. On the day of settlement, it is important that a final search of the title to the property be obtained from the Land and Property Information NSW. This is to ensure that the property is clear from any interests or restrictions which may have been recorded between the date of exchange and settlement. At settlement, the balance of the purhase price is paid to the seller and you become the legal owner of the property. Stamp duty on the property and also on the contract will have to be paid. Make sure that you have insurance for the property arranged from the date of settlement.
Conclusion
While the buying process can seem daunting at first, it need not overwhelm you if you are patient and do a bit of ringing around. Keeping in mind that buying a home will be your most significant lifetime investment, take adequate steps to ensure the house is suitable and of adequate quality for you to live in.
Tina Doan
BComm LLB (UNSW)
Legal Practitioner
March 1, 2001
March, 2001
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