Buying your first home can be the most exciting and daunting process you will go through. There are lots of things you need to think about, such as where is my finance coming from, is the building structurally sound, is there anything I’m concerned about, who will be my solicitor/conveyancer, etc.
Below we have detailed the 5 most common mistakes people make when buying their first home, and tips on how to avoid these.
1.Signing a contract without a solicitor/conveyancer reviewing it
Many items go into a contract which many first home buyers are not aware. For example, most people want a building and pest inspection and a finance clause to be included. However, did you know, that on an REIQ contract, if you do not fill out all three sections of the finance clause you don’t have a valid condition for finance on that contract?
Another major item that people don’t notice on contracts is that most conditions are set from the date of the contract date. That doesn’t mean the day that you, as the buyer, sign the contract. It means the date that both parties have signed (generally the seller signs last). Sometimes, depending on other special conditions that might be included in a contract, a condition might read 7 days from the satisfaction of another condition – such as due diligence. Make sure you know when your due dates are scheduled.
The third most common mistake found on contracts is the misspelling or lack of full name of the buyer inserted on the contract. If your name is not spelt correctly on a contract, or your middle name is missing, a Deed of Recission and New Contract is required to be drawn up and signed by all parties to make this change. Depending on your legal representation, this will cost you additional fees. As such, check carefully to make sure your name is correct.
If you don’t have your solicitor or conveyancer review your contract before you sign it – you are, to an extent, locked into what that contract says. The only way to have it amended it via agreement through the solicitors and any agreement such as this is at the seller’s discretion.
2. Not attending the building and pest inspection.
Building and Pest inspection reports can look scary; they are usually between 10-20 pages long and detail every single issue the inspector has found with the property. That’s what you are paying them to do – identify all the issues they can find. However, you are generally only able to terminate a contract if there are structural issues, multiple major issues or active pests in the property.
We recommend you attend the inspection, walk around with the inspector and they will talk you through/show you the major issues if there are any. Most of the time, they include all the small issues because that’s what you’ve paid them for, and they need to protect their professional name as well. But at the inspection itself, they will give you a very clear verbal determination if there are any issues to worry about.
3. Not highlighting issues/council issues to your solicitor/conveyancer.
Many people think that just because a property has been built – that it has council approval. This is true for most dwellings. However, if you look closely at many properties, especially in Queensland, there isn’t just a dwelling on the property. There may also be a carport, a deck, a pergola or a pool. All of these items generally require separate council approval and many times they are not obtained by the seller when first built or not finalised by the time they want to sell the property.
When you look to buy a property, you should give your solicitor/conveyancer a rundown of what is on the property. Remember they haven’t been to the open home, you have. So, let us know if there is a carport that looks like it’s been added onto the property. If there is, we will recommend you include a due diligence clause into the contract so searches can be performed to ensure you are aware of what you are taking on with the purchase.
Finance, especially during the pandemic, can be difficult to have approved. The banks are overrun with applications and working with limited staff. Furthermore, most contracts allow for 14 or 21 days from the contract date for you as the buyer to obtain formal finance approval. Not conditional approval, not verbal approval – but formal finance approval. This means you have to submit your application to the bank, obtain pre-approval, submit more documents, obtain conditional approval and then wait for the bank to issue a formal finance approval. Assuming there is no further information required or no issues the bank needs to discuss with you, this process generally takes between 2-4 weeks from the time you first approach the bank.
As such, when you start looking for your first home to purchase, make sure you’ve already touched base with your broker/bank and applied for pre-approval. Once you have that, you will have clarity about how much you can legitimately afford as a purchase price and feel content that your approval won’t take as long to come through.
5. Thinking the purchase price is the total cost of the purchase.
The purchase price is the main cost involved in a purchase. However, it isn’t the only cost. At settlement, your solicitor/conveyancer will perform adjustments for rates, water, body corporate etc. Unless you are due to settle on the first day of a new quarter, adjustments will always need to occur.
In addition to adjustments, you need to pay legal fees and stamp duty (if your purchase is over $500,000 or you are purchasing vacant land). Additionally, the loan approval that you receive from your bank is not the full amount they will be provided in cash at settlement. For example, your loan amount may be for $400,000. Out of this, the bank will take Lenders Mortgage Insurance (LMI), bank fees, settlement agent fees etc. Meaning that at settlement the bank is really only providing you with $388,000 (*NB this is just an example of expected figures).
Make sure you have discussed with your bank or broker exactly how much you need to be putting into the purchase and ensure they have taken into account all the additional fees that come with a purchase when providing you with formal finance approval.
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