Buyers guide – Where to start
Buying a home will probably be the most expensive and important purchase you will ever make. Getting it right can set you up well and change the course of your life as having equity opens doors to future opportunities. So you need to research, plan and have patience to make a successful purchase, and whilst you may be experienced, getting professional advice on property, finances and legal issues often highlights areas that you may not have yet considered. There is a massive amount of generally available information to you to help you make informed decisions. Often it is filtering this information into concise materials that guide your thought processes to achieve the right outcome. Broad reading and checklists can help.
Know who is in the market
Whilst you’re keen to find a property and get settled, unsuccessful purchases and a few knock backs can make it seem like you will never find the right house and that you will be saving for a deposit for years. Yet others seem to enter the market and commence their journey more easily.
First home buyers are often disadvantaged when competing against other owner occupiers and investors. Investors present approximately a third of the market, and other owner occupiers well over half the market.
Investor offers are often not conditional on finance and whilst other owner occupiers may provide conditional offers, they are usually viewed favourably by agents as being more dependable than first homeowners as they are accompanied with pre-approval loan documents that the seller is more inclined to accept.
Don’t worry, most people need to borrow finance to buy a home. You should ask lending bodies (i.e. banks, building societies, credit unions, cooperative housing societies, mortgage brokers and originators) how much you can borrow, and when. Most importantly you should find out the usual terms and conditions offered by a financial institution before making a finance application. In general, it is wise to get separate and independent mortgage and finance advice.
What is a mortgage?
The mortgage is the legal document for the loan on a property, with the terms and conditions of the loan that are specifically tied to one or more properties. The lender (or mortgagee) is the entity that lends money to a borrower (or mortgagor) for the purpose of purchasing real estate. Generally, if repayments are not maintained or the borrower otherwise breaches the mortgage conditions, the lender has the right to sell the property to recover the outstanding debt.
To limit its risk, the lender creates a priority legal interest or right that is recorded on the property title that creates an entitlement to the property and the ability to exercise its rights if the borrower defaults on the loan. Second mortgages may be obtained if additional funds are needed to complete the purchase of a home, or for other reasons. Generally, lenders prefer to lend all of the money and hold first and second mortgages.
Mortgage insurance is often required by the lender if you borrow more than a set proportion of the valuation. The mortgage insurance premium is a one-time payment for which insurance that protects the lender if you default on the loan and the property is sold for less than the outstanding loan amount.
You, as the borrower, can and should take out further insurance to protect you, your property and family in the event of unexpected circumstances such as; income protection insurance to cover the mortgage repayment in the event of illness, accident, unemployment or death, and title insurance, which protects you from any loss for future events with information that is incorrect on the property title and some other documents.
Making offers subject to finance
If you’re a first homeowner, the first offer you make may well be subject to finance. So, you need to do your homework before making an offer, as making offers subject to finance can be problematic.
Not only can a ‘subject to finance offer’ rank your offer lower in the eyes of the agent or seller, if not executed wisely, the buyer may be legally bound to accept a loan offer, even if the terms of that offer may seem unreasonable or are not the best loan agreement you can obtain. Whilst often not a problem the sequencing of the process for making applications for a loan and making an offer on a property may be important to avoid the possibility of having to agree to unreasonable finance conditions, and being contractually locked into a property and loan where you’re not 100 % on top of the conditions that you are signing up to.
You should find out the usual terms and conditions offered by a financial institution before making a finance application and importantly before signing a contract subject to finance. It is good practice to obtain competitive offers from finance institution or brokers and to read the terms and conditions thoroughly and then get independent finance advice to discuss the terms and anything that you are unsure about. There is no such thing as a dumb question when it comes to buying the biggest investment in your life.
What is the role of the Real Estate agent?
It can be daunting when negotiating an offer and organising finance.
Always remember that the real estate agent is duty-bound and legally represents the seller of the property. So, whilst the seller’s real estate agent may advise the buyer on the property’s status, and they are obliged to disclose any ‘material fact’ about a property before contract signing, when it comes to buying a property and taking out a loan the person representing the buyer is you.
So, when it comes to finances, get independent advice which can assist you.