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Things I've learned while buying a house in Canberra, ACT
Buying a house is, on the whole, overwhelming. There are a lot of middlemen involved--lenders, solicitors, insurers, real estate agents--and it feels like everyone is only giving you a small glimpse of the whole process. That's probably not surprising: to them, it's an everyday, boring process; to you, it's something that only happens a few times in your life.
I'm writing this to attempt to summarise the process I went through when buying a house. I bought a house in Canberra (the capital of Australia) in 2010, so my comments reflect the state of things in that place at that time. I should also emphasise that buying a house is my only claim to expertise, and not a very good claim either. Please take what I say with a grain of salt, as it's the ravings of a rank amateur. Any errors are mine (but I'd appreciate corrections!)
An overview of the whole process
Conveyancing: the legal process of transferring ownership of property from one party to another.
Deposit: the amount (usually 10% of the purchase price) that you pay the seller when exchanging contracts.
Exchange of contracts: the date at which you and the seller enter into a contract for the sale of the property. The contract will contain lots of conditions, but the crux of it is you agree to give them money and they agree to give you the property.
Mortgage insurance: a discretionary fee that your lender might charge you.
Settlement: the date at which you take legal ownership of the property (roughly speaking).
Stamp duty: a tax aimed at people who buy or sell property.
Just one: Money! Specifically, enough to cover:
Your deposit (paid to the seller when contracts are exchanged--usually 10% of the purchase price of the property)
Stamp duty (based on the purchase price)
Property inspection reports
Mortgage setup fees
Decide how much you can afford to spend based on mortgage repayments and your savings.
Find a lender and get a letter of pre-approval for finance. They'll want a whole bunch of information from you: evidence of savings, information about your salary, information about any assets or liabilities you have, etc..
Find a solicitor who is willing to provide conveyancing services for you.
Find a house you like. Harder than it sounds.
At the open house/inspection, ask the seller (or their agent) for a copy of the contract for sale. This will include a draft of the contract, a property inspection report, land title information, and so on.
The ACT is (currently) unusual in that it requires the seller to have an inspection on the property performed before it goes onto the market. The buyer still ends up paying for it, but it's nice that you don't have to arrange this yourself...
Make an offer to the seller (either privately or via auction) and cross your fingers.
Offer accepted? Panic and drink champagne (but not both at once).
Notify your lender that your offer was accepted. They'll need a copy of the instructions for sale (provided by the seller), and will arrange a valuation of the property and (based on this) will advise how much they're willing to lend you.
In some cases, you might also be charged mortgage insurance. This is a discretionary fee that your lender might charge you if you end up borrowing more than a certain percentage of the value of the property. Note that this insurance protects the lender, not you. To you it's just a fee.
Visit your bank and get a bank cheque for the full amount of the deposit (10% of the purchase price).
Arrange for building insurance on the property, starting from the date you expect to exchange contracts (not the date you expect to settle). In the ACT, you're liable for the property as soon as you've exchanged contracts. Ask the insurer for a certificate of currency--a document showing the details of your insurance, how much you're covered for, etc.. You'll need to provide this to your lender in a few steps' time.
Have the seller provide a copy of the contract for sale to your solicitor. Once your solicitor has received this, meet with them to review the contract and ensure that everyone is satisfied. You can sign the contract at this point if you're happy. You can also hand the deposit cheque from the previous step to your solicitor at this point.
A day (or so) before the exchange of contracts, you will be asked to inspect the property. The point of this is to make sure you're happy with the condition of everything before committing to buy.
Around ten days after your offer being accepted, you will exchange contracts. You'll meet your solicitor to sign the contract (if you didn't already), and the seller will do the same. Your solicitor receives a copy of the contract signed by the seller, and the seller's solicitor receives a copy of the contract signed by you.
Your solicitor will be in touch to request that you provide a cheque to cover stamp duty (they'll tell you how much it is). Another visit to your bank for this.
Your lender will be in touch to finalise the details of your mortgage. This is where you sign your life away--they'll give you a huge stack of forms that need to be signed in about a hundred different places. You'll also need to provide evidence that you have insured the property, so send along your letter of currency your insurer sent you a few steps ago.
At the time of writing, the Government is offering a First Home Owner's Grant (FHOG) for people buying their first home. If you're eligible for this, now is the point to apply. You can either apply yourself, or your finance provider can do it for you. If your finance provider does it for you, they receive the grant on your behalf and can add it to the pool of funds during settlement.
Arrange a pre-settlement inspection of the property. This is your last chance to make sure everything has been left in a state that you're happy with and probably the first time you've seen the property completely empty.
Just before settlement, contact your solicitor to find out if you need to provide any additional cheques. There will be some miscellaneous amounts (such as the cost of the pest report, any different between the amount you borrowed and the agreed purchase price of the house, etc.) that you will need to cover in the form of bank cheques.
Contact the seller's agent to make arrangements to take possession of the keys after settlement.
Contact your solicitor to double-check that they are ready to go ahead with settlement.
Wait anxiously to hear from your solicitor to confirm that settlement went through.
Take the keys, celebrate!
Things I've learned
Auctions are scary
If you're the highest bidder when the hammer falls, you just bought the place. After that, you've got a 4-6 week settlement period which gives you time to get your finance together. If your finance falls through, the sellers get to keep your deposit (5-10% of the purchase price). That's bad.
Buying privately is less intimidating and usually comes with a cooling off period--a one week period after exchanging contracts that allows the buyer (but not the seller) to bail out without penalty. Note, though, that this period can waived in the contract.
Mortgages are awkward
But I guess we're stuck with them. They're awkward because you don't actually know how much you can borrow until you've had your offer accepted. Here's how I understand it works:
You get pre-approval from your lender to borrow some certain amount. This is just an indicator of how much they're willing to lend you given your financial circumstances; it's not a promise for anything. Imagine a friend drunkenly promising to lend you money--it's about that formal.
You find a place you like, figure out how much you're willing to pay, and make an offer (either privately or at auction).
Your offer gets accepted, you pay the deposit (10% of the accepted price, usually) and exchange contracts. At this point, your lender arranges a valuation of the property and figures out how much they're willing to lend you based on their valuation.
That means that if the lender values the place you just agreed to buy at lower than you were expecting, you're not going to be able to get a loan for as much as your pre-approval. If you can't raise the difference and you bought at auction, you lose your deposit. Ouch.
Property valuations might be good
You can get the property you're interested in valued before making an offer or going to auction. The story here seems to be that independent valuers generally won't differ by much, so paying the hundred or so to get the place valued is a good investment. It's not ideal though: the lender's valuation might still come out differently from the one you arranged, but (I'm told) it's likely to be much the same.
It would be nice to be able to have the property valued by the same firm that your lender will use, but you can't do that either: to help prevent collusion, lenders must use a rotation of valuers and won't know in advance which will be picked to perform the valuation.
I'm still struck by the large number of people who need to be coordinated to see the whole property sale through, so it's little wonder that how smoothly it all goes is largely dependent on how well-organised everyone (including you) is.
In that regard, I was lucky: the people I've dealt with have all been well-organised, efficient and helpful people. They've gone out of their way to answer questions and worked quickly to keep things moving along. I have no affiliation with any of these people, but since good recommendations are hard to find, here are mine:
Vijay Gakhar from Aussie Home Loans is likely the most organised guy in the world, and has tirelessly answered my unrelenting questions.
Lindsay Peak and the team at Ray Swift Moutrage & Associates have been great to deal with. They were reassuring and worked quickly on their parts of the process without being prompted.
Jonathan Charles from Independent was employed as the agent of the seller, but took my interests to heart anyway. He gave clear guidance through the whole process and invited me to ring him any time of the day or night with questions.