Buying Your Own Home - Step by Step

For first homebuyers this process can be challenging and a little confusing. Help is at hand however, and with a little forethought and assistance from the professionals you'll be settled into your new home enjoying that book or bottle of red, in no time!

Assuming that you've got pre-approval from your financier, you've identified your new home and you're ready to make an offer, the next step is to negotiate with the seller. Before you do this however, you may want to let you conveyancer or solicitor know you plan to make an offer very soon. In addition let you financier (bank or broker) know as well. This way all parties will be ready to play their part in the coming process.

How do I make an offer?

As a buyer you will make an offer to the seller. You may be dealing with an agent acting on behalf of the seller, or alternatively directly with the seller themselves if they've decided to bypass the agent and sell privately. Once a price is agreed the buyer will typically pay a small deposit as evidence of goodwill, to be held by the agent until settlement. It is important to realise the seller can still decide to sell to someone else at this point, an unfortunate process known as 'gazumping'. To make this sure this doesn't happen, the buyer should get the contract to their appointed legal representative ASAP for inspection.

Role of your Legal Representative

Unless you are a lawyer or qualified conveyancer, you should strongly consider appointing a solicitor or conveyancer to assist you through this next stage of contract negotiation. Remember that the agent is acting in the seller's best interests, not yours. Your Representative will act in your best interests by reading and explaining the contract to you. Your Representative will liaise with the agent, the seller and the seller's appointed legal representative to negotiate any pertinent issues. Common clauses inserted by buyers include 'subject to finance' and 'subject to valuation suitable to the financier and to the buyer'. This gives the buyer a level of protection and way out of the purchase should any negative issues arise during due-diligence.

Exchanging contracts

Once the final copy of the contract has been agreed the next step is for both the buyer and seller to sign a copy of the contract and exchange these with each other. The buyer will then pay the balance of the 10% deposit to the agent to hold in trust until settlement. You can no longer be 'gazumped' at this point. The property is yours should you wish to proceed with the purchase. Cool off! Some states have a cooling-off period that follows exchanging of contracts. The buyer must inform the purchaser in writing should they wish to withdraw from the process (which a buyer can do for any reason at all). The deposit is returned to the buyer, apart from an amount equal to 0.25% of the purchase price (in some cases - ask your legal representative to explain this to you). Note that both parties can agree to waive the cooling-off period should they wish to conclude the transaction more quickly.

Notifying your financier

You will need to contact your financier and apply for formal loan approval. If you are arranging finance through a mortgage broker, contact them otherwise contact the lender directly. The financier will then commission a valuation, undertaken by a valuer that is registered on the bank's 'approved panel' of valuers.

Due diligence

The cooling off period also allows you to move to exchange of contracts sooner, for example where pressure from other buyers threatens your purchase. If you did not have to conduct all of your necessary due-diligence prior to submitting an offer you will need to conduct the following checks during the cooling-off period:

  • Building structure and condition report
  • Pest inspection report
  • Conveyancing

Briefly, conveyancing is the process of transferring property ownership from one owner to another. For a more detailed treatment, see our in-depth article on conveyancing here. There are a number of fees and charges here related to title searchers, legal expenses rate, planning and other certificates, and transfer and registration fees. Make sure you budget for these.

Pre-settlement Inspection

Before you take possession of your property you have the right to visit the property for one last inspection. Often this time is used to check that everything specified in the contract, such as light fittings, switches etc. is actually in the house. You can also check for wear and tear.

Settlement

Your appointed representative will arrange time/date/location to conclude the settlement. Congratulations! After you have paid the remaining balance owing the vendor, you will receive title deeds and keys. You have completed the purchase process! Arrange for the balance of the funds owing to be drawn and given to your representative (conveyancer) the day before settlement. If you pay cash, you will receive the title deeds. If you have obtained financing, the financier will take the deeds until you have repaid your mortgage. You must also pay stamp duty on the purchase within 3 months of settlement. Remember too that most lenders will require you to insure your new home. Arrange a cover note before settlement, if possible.

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Published on March 3-th, 2008 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.

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