Are you thinking about buying a home or buying your first home? This post relates to purchasing property for use as your primary residence in NSW. It doesn’t address additional issues associated with buying investment, holiday or other property that isn’t your primary residence.
When buying a home in NSW, you will most commonly get one of the following:
- Freehold: you get extensive rights of use and exclusion over the land and buildings on the land. This is what most people think of as ownership of a freestanding house.
- Leasehold: Similar to freehold, except that the rights are time limited, such as 99 years.
- Strata title: Usually applies to apartments or townhouses and gives you rights over the space within the apartment or townhouse, plus any balcony or backyard space that comes with the property title.
- Community title: Usually works in combination with strata title and gives you rights over communal land in a development (along with everyone else in the development).
Conveyancing when buying a home
Conveyancing is the process of transferring ownership of a property from the vendor to the purchaser. This work can be done by a property lawyer, a licensed conveyancer or yourself. Lawyers and conveyancers have professional indemnity insurance and fidelity cover, which means that you can recover costs if they make a mistake.
There are do-it-yourself conveyancing kits to assist you if you don’t want to engage a lawyer or licensed conveyancer. However, the risk of doing conveyancing yourself is that if you make a mistake, you won’t be able to recover your costs.
Getting finance for buying a home
When budgeting for your property purchase, you will need to include costs such as conveyancing costs, inspection reports and stamp duty. You will also need to work out how much you can afford each week in mortgage repayments. Additionally, you need to budget for ongoing expenses such as council rates, water, insurance, strata levies and maintenance.
When buying a home, many people borrow money in order to cover the full purchase price of a property. This is called a mortgage and it is a form of security over the property in that the lender (the mortgagee) has the right to repossess the property if you default in your repayments. The mortgagee will be listed on the Certificate of Title to the property.
Lenders Mortgage Insurance
Generally lending institutions (such as banks) will loan up to 80% of the value of the property. Some banks will allow you to borrow a greater amount if you purchase Lenders Mortgage Insurance. This is a one-off payment added to your home loan.
Getting someone to guarantee your home loan
If you are having trouble borrowing money from a home loan provider, sometimes a friend or family member will guarantee your loan. This means that if you default on your mortgage and the mortgagee cannot recover the money from you, they will be able to recover the money from your guarantor.
First Home Owners Grant
If you are purchasing a new home and it is your first property purchase, you may be eligible for a first home owners grant. You can find more information on the NSW Office of State Revenue website.
Stamp duty is a tax that you pay on a property when purchasing and is calculated according to the purchase price. There are partial or full exemptions available to some first home buyers. Stamp duty needs to be paid within three months of the exchange of contracts.
You will likely attend at least one personal inspection. Generally, it will last for between half an hour and an hour. Some examples of what you should look for during the property inspection are:
- Making sure fittings and fixtures are sturdy and functional.
- Check doors and windows to make sure they open and shut properly.
- Check taps and shower heads for leakage and how long it takes for hot water to come through.
- Look for damp and mould, including under carpets and pay attention to any recent painting that may have been done to cover mould.
- Check the hot water system for age and any leakage.
- Look for any buckling walls and ceilings.
- Check light switches and look at the fuse box to see if there is an Earth Leakage Safety Switch.
- Look for rust and other damage to the pipes internally and externally including downpipes and guttering.
- Listen for noise levels outside the property.
You should also get a building inspection done before making an offer on the property. A building inspection report will identify any significant building defects, problems and safety hazards.
Building inspection might identify some of the following issues:
- Rising damp.
- Faulty roof.
- Movement in walls.
A building inspection is important because it allows you to identify in advance any issues that may be costly to repair and to negotiate the sale price based on any identified issues.
A building inspection won’t identify pest issues such as termites and termite damage that isn’t easily visible. It is a good idea to get a pest inspection report done, especially if pests such as termites are a known problem in the area in which you are looking at buying a house.
Make an offer and expressions of interest
If you are interested in a property and make an offer, you may be asked to pay a part deposit as a sign of good faith. At this point you can send the contract of sale to your lawyer or licensed conveyancer. However, until you have signed and exchanged contracts of sale, neither party is locked in.
Gazumping can occur when you have made an expression of interest or have a verbal agreement to purchase a property, prior to the contracts of sale being exchanged. At this point, the vendor may accept a higher offer for the property.
Gazumping can be distressing if you have gone about arranging finance for the property. However, the vendor is entitled to the highest price for their property.
You are entitled to receive back any expression of interest payment that you made in full. You are not entitled to recover any expenses made in obtaining legal advice for the contract of sale.
Exchange of sale contracts
Once you have inspected the property and your lawyer or conveyancer has looked over the contract of sale and negotiated terms, you will pay your deposit and exchange contracts. The deposit is usually 10% of the sale price.
Once you have exchanged contracts, you will have a five-day cooling off period that can be rescinded (ended) by you (the purchaser) or extended by mutual agreement. If you rescind the contract during the cooling off period, you forfeit 0.25% of the purchase price of the property, generally taken from your deposit.
Property settlement usually takes place about six weeks after contracts are exchanged. You become the legal “owner” of the property at this point. Settlement is when you pay the balance of the amount owing.
At an auction, vendors usually have a reserve price that is the minimum amount they are willing to sell their property for. The reserve price is not disclosed to bidders. The highest bidder above the reserve price is bound to purchase the property. There is no cooling off period.
Agents are required to give all potential bidders a copy of a publication called the Bidder’s Guide prior to the auction.
If you intend on buying a home through an auction, it is important that you have your finance ready before you bid. It is a good idea to go to a few auctions as a spectator beforehand so that you can get used to the process. Because there is no cooling off period after an auction, you should make sure that you look at the purchase contract beforehand. It is even better to have your lawyer look over it.
You can negotiate any terms that you aren’t comfortable with in advance to make sure that if you have the winning bid at the auction, you’re signing a contract that meets your needs.
Buying off the plan
There are extra considerations if you’re thinking of buying off the plan. Because of these additional unknowns, it is wise to have your lawyer or licensed conveyancer to look over the contract before you sign.
Depending on the exact terms of the agreement:
- The developer might be able to vary the design of the property without your approval.
- The cost of the property might go up if there are additional construction costs.
- There might be construction delays, pushing back the date that you can move in.
Some other questions that NSW Fair Trading recommends that you ask the developer are:
- What changes can you make to the finish of the property, for example in the kitchen and bathroom?
- Can changes to the design be made without your consent?
- Can you select appliances and flooring?
- Can you visit the site during construction?
- What are your rights if construction is delayed or the design is changed?
- If the building/s don’t go ahead, can you recover your deposit?
Generally, when you buy off the plan, you will pay the deposit to secure the property and then settle once the construction is completed.
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