Version 1.1 01/02/18 HOME BUYER Guide
contents page STEP 1: Saving for a deposit 4 STEP 2: Research the property market 6 STEP 3: Get VIP-approved 8 Learn about different loan types 10 STEP 4: Get the appropriate checks done 12 STEP 5: Make an offer or bid at auction 14 STEP 6: Exchange contracts 16 STEP 7: Waiting for settlement 17 STEP 8: Celebrate! 18 Learn the lingo 20 Buyer checklist 25
Let s start at the beginning... Buying a home is likely to be one of the biggest financial decisions you will make in your life and in the long run has the potential to be one of your biggest assets. Therefore, it s important for you to do your homework and take your time to understand every aspect of the home buying process. Endeavour Mutual Bank has been helping people to get into their first home, second homes and investment properties since 1953, so we can make the whole process a lot easier. 2
...a very good place to start! This booklet goes beyond talking about loans and gives you the information you need throughout the home buying process; from start to finish. You may still have questions about buying property (there s a lot to wrap your head around!) and that s why we have specialists in this area. Please contact us on 1300 13 14 20 and we will help you with your queries. 3
Step 1: Saving for a deposit One of the first and important steps of the home buying process is saving for your deposit. It can take time to save but the benefits of having a deposit will mean you don t need to borrow as much and avoid some additional costs including Lenders Mortgage Insurance which is required if your deposit is less than 20%. At Endeavour Mutual Bank, we can lend up to 95% of the property value and the Lenders Mortgage Insurance can be added to the loan. Endeavour Mutual Bank provides a range of calculators that are able to assist you in budgeting, creating a savings plan and calculating your repayments. Vist www.secul.com.au/tools/calculators and spend some time working out your budget, this can help when researching the type of property you can buy. 4
Step 1 checklist Use the Endeavour Mutual Bank budget planner calculator to see where your money goes. Set up a savings plan with Endeavour Mutual Bank. Aim to have a 20% deposit saved. Top tip Keep in mind that you will also need to pay stamp duty on top of this. For a purchase price of $500,000, stamp duty would be just over $18,000 in NSW. 5
Step 2: Research the property market While you are saving for your deposit it s a good idea to begin looking for the right property. The more research you do, the more likely you will find a property which meets all your must haves. The internet is one of the most convenient ways to scope out the market, or you could also contact some local real estate agents directly. Decide what is important to you; do you want to live close to a school? Close to public transport? Looking to move out of the city? Or is the property going to be an investment that you will rent out? Buying a property should be considered a long term investment, so you want to choose a piece of real estate with healthy growth potential. Here are a few popular property features you may wish to consider: 6 1. Does the property have an attractive outlook? 2. Does the property have a northern orientation meaning it will receive the maximum amount of sunlight throughout the year? 3. Are there any distinctive or character features? 4. Is the property in close proximity to transport, schools, parks, cafes and shops? 5. Is the property in a desirable suburb? 6. Has the property been recently renovated?
Top tip Have a plan of action so you aren t wasting your time only look at places which fit your minimum criteria. BUT, be prepared to compromise on some things, as it s unlikely that you will find a house where everything is perfect. Step 2 checklist Attend some open inspections and auctions to get your feel for the property market. Research which suburbs and areas that would suit you. 7
Step 3: Get your VIP-approval Once you have an idea of the type of property you want to buy, you know your budget and you have a reasonable deposit it s time to get your finances prepared. Chatting to a home loan specialist will help you to get an understanding of exactly how much you can borrow as well as estimating your repayments. Getting a pre-approval gives you the confidence to go property shopping. You can attend open homes and auctions knowing much of the paperwork and finances have been approved, however it isn t until you find the property you want that the final approval is processed. Whilst a loan repayment calculator will give you an idea of costs, you will need to speak to a mortgage specialist to assess your personal financial situation. And by getting pre-approval it allows you to shop like a VIP, knowing that you are ready to go when you find the right place to buy. 8 The pre-approval process is easy - and will save you time when you get to Step 6 exchanging contracts.
Step 3 checklist Arrange a meeting with a Lending Specialist at Endeavour Mutual Bank You can come to us, or we can come to you. Get your paperwork in order, collect tax returns, pay slips and bank statements to bring along to your appointment. Select a property lawyer, conveyancer or solicitor, or we can recommend one for you. 9
Let s look at the different loan types Variable Home Loans: The rate for Variable home loan products moves up or down with the official cash rate, set by the Reserve Bank of Australia (RBA). When the RBA changes the cash rate, the majority of variable home loan interest rates change by the same or similar amount. This means that if rates go up, so will your required repayment amount, but conversely if rates go down, your required repayment amount will drop. A variable home loan is usually fairly flexible allowing things like additional payments without penalty and the ability to redraw any extra repayments you have made. Fixed Rate Home Loans: This type of loan means that your repayment is set at a fixed rate for an agreed period of time. This type of product is ideal if you like to budget your repayment amount as it won t be affected by fluctuating interest rates. The down side of this is that if rates go down, your repayments will remain at the rate your loan is fixed at. 10 First Home Buyers Loan: This type of loan has been designed to help first home buyers enter into the property market by offering a discount rate for 2 years resulting in excellent interest savings that you can take advantage of.
Mortgage (Line of Credit): A mortgage line of credit facility secured by a mortgage allowing you to withdraw funds to a set limit at any time. As long as you make the minimum repayments, you can also use your Mortgage line of credit loan to pay for other expenses. Family Helper Loan: A Family Helper Loan is a home loan feature that allows parents to use some of the equity in their own home to guarantee part of a home loan taken out by their children. This gives the children the ability to borrow more, or borrow up to 100% of the value of the property plus stamp duty and other up front costs. It also helps to avoid mortgage insurance, saving your child thousands of dollars. As guarantor, you can nominate a specific amount that the guarantee is limited to and once the loan balance reduces and/ or the value of their home increases, your guarantee can be released. Hedge Your Bets! Split Your Loan Can t decide on whether you are better suited to fixed or variable? There is also the option to fix a portion of your loan and leave the remaining amount as a variable loan. 11
Step 4: Get the appropriate checks done If you are serious about a property you ve seen, there are a few things you should check first so you can make an informed decision about how much you wish to pay for the property. Review the contract The vendor (or seller) must have a contract of sale prepared and available for review before offering a property for sale. You can request the contract from the sales agent, and it will usually include: A zoning certificate; a copy of the title; and copies of documents outlining any other registered interests over the property. 12 Request reports Get as much information about the property as you can before you make an offer. If the property is part of a strata you can request a copy (usually for a fee). You may also like to request a Building and Pest inspection (which will cost anywhere from $200 to $1,000). Building and pest inspections will usually give you an assessment of roof space and sub-floor (to check for
structural damage); guttering; footings (the base of foundation walls); doors; ceilings; framing; plumbing; wiring; dampness; rot; window space (to ensure your windows are adequately sealed); report any features of the house that do not meet current regulations, including illegal extensions or alterations to the property; presence of wood destroying insects, such as borers and/or termites; and any existing and potential damage they may have or will cause. Your property lawyer or conveyancer will be able to review the contract and strata report, and discuss anything of concern. Step 4 checklist Request a contract from the sales agent. Request any other applicable reports (i.e. strata; building and pest inspections). Get your property lawyer or conveyancer to review for you. 13
Step 5: Make an offer or bid at auction Once you ve found a property within your price range, which meets your needs, you have pre-approval for a loan, and had all the necessary legal and property checks done, the next step is to make an offer on the property, or bid at auction. 14 Property for sale - Make an offer Put your offer in writing to the real estate agent. This should include how much you re willing to pay, any conditions such as repairs or deposit amount and a time frame for moving in. Your property lawyer or conveyancer will help you prepare a letter of offer for the property you want to purchase. Note that if the contract includes a cooling-off period, you can usually use this time to get a building and/or pest inspection done on the property. Property for Auction - get ready to bid! Set yourself a limit to ensure you don t get carried away and end up paying more than you can afford. If you
get too nervous, or think you may be tempted to bid over your limit, you can nominate someone to bid on your behalf. You have to register to bid at an auction, so make sure you get there 10-15 minutes beforehand to register. If you are the successful bidder at an auction, a 10% deposit in the form of a cheque will need to be paid at the fall of the hammer. Also note that with an auction, there is no cooling off period. Step 5 checklist Make an offer in writing if the property is on the market for sale. If the property is for auction, register as a bidder on the day and have a deposit cheque ready, just in case you are the successful bidder. Top tip Be prepared to walk away with empty hands if it means you have to go above your budget. There will always be more properties listed for sale! 15
Step 6: Exchange contracts Once you have agreed on a price with the vendor, or if you are the successful bidder at an auction, you will need to exchange contracts and pay the full deposit, which is usually 10% of the purchase price. 16 You ll need to arrange for home insurance at this time, as you are the owner of the property from the date contracts are exchanged. Your contents insurance can begin from the time you move in. If you re buying a unit, you ll need to arrange a Certificate of Currency from the Body Corporate s (Strata) insurer, to make sure the property is adequately covered. Once you have a fully signed copy of the contract (signed by both the vendor and you, the purchaser), send a copy to your conveyancer and us here at Endeavour Mutual Bank. Your conveyancer will get in touch with us and this is when we will complete your loan application, to ensure that everything is ready for settlement day.
Step 7: Waiting for settlement Settlement time is determined by the vendor but can be negotiated. Usually it s around four to six weeks. There is a lot of things you can do whilst you are waiting for settlement. There will most likely be documents for you to sign from Endeavour Mutual Bank or your lawyer, or both. You can also do things like packing up your belongings where you currently live, or arranging for a moving company to come in and help you, or if it s going to be an investment property, this time will allow you to find a suitable tenant to move into the property, after it has settled. Other things to think about or research in this time include, mail redirection, utility providers and home and contents or landlord insurance. On the day of settlement, you will be notified when settlement has taken place and when you can collect the keys from the real estate agent. Your lawyer will take care of the actual settlement process and this is when you pay the balance of the property using your home loan, including Stamp Duty. 17
Step 8: Celebrate! Settlement has taken place and now the fun really begins. Pop the champagne or ginger ale and give yourself a little high-five! Well done on purchasing your first home, second home or investment property. If you re moving into your new house straight away, work out where your local take-away places are so that you don t have to worry about cooking dinner on your first few nights in your new place - after all, your pots and pans are most likely still packed in a box somewhere. Good luck with unpacking and enjoy your new surroundings! 18 Top tip If you re moving house and packing up your old place, keep a box marked Essentials where you put all the bits that make things go. Think remote controls, extension cords, batteries, torches, keys, scissors, screws you may have removed from furniture to pack it up, a basic toolkit, chargers and anything else essential.
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Learn the lingo! Body Corporate A corporation of the owners of units or town houses within a strata building. They form a self-elected council to manage and maintain common areas. Comparison Rate The comparison rate includes the interest rate as well as most of the fees and charges payable during the life of the loan, expressed as a single percentage figure. This gives you a more realistic figure in terms of the true cost of the loan. Be aware that the comparison rate doesn t take certain fees and charges into account such as government charges and early repayment fees. Equity People talk about having equity in their home. Basically the equity is the difference between the value of the home and the amount that is owed on the home loan. For example, if your home is valued at $500,000 and you owe $320,000, you have $180,000 in equity. You can use some of the equity in your home as security and borrow against it. 20
Grants These rules are always changing so to find out the specifics on the government grants available you can check out all the eligibility details here: http://www.firsthome.gov.au/. LMI LMI is short for Lenders Mortgage Insurance. This is in addition to all the other costs of buying a home. It is a one off payment which can be added to the loan (but then you re paying interest on this) and it is worked out as a percentage of how much you borrow - but you only need to pay LMI if you want to borrow more than 80% of the value of the home. LMI is paid by the borrower to ensure that the lender is covered if the borrower defaults on their repayments and they are unable to meet the commitments of the loan contract. LVR Loan to Value Ratio or LVR is the amount you are borrowing, represented as a percentage of the value of the property. For example, if you are purchasing a property valued at $650,000 and you are contributing $130,000 of savings to the purchase, you will need a loan amount of $520,000. Which means... $520,000 $650,000 = 80% LVR 21
Offset An offset account lets you link the loan to a transaction or deposit account. The balance in the transaction account offsets the loan principal. Interest is calculated on the loan principal minus the balance in the savings account so you end up paying less interest on your loan. Redraw A redraw facility allows you to make additional contributions to your mortgage and then redraw these extra funds. A lot of people use a redraw facility to pay for large expenses like renovation costs, school fees or overseas holidays. Generally, a redraw facility works best for borrowers who need to redraw against extra repayments infrequently. A redraw facility may not be the most appropriate product if you will need regular access to funds. Line of Credit A transaction account that has a credit limit attached to it. The borrower can generally withdraw funds at any time, up to the credit (or facility) limit. There is usually no fixed repayment schedule however the borrower is usually required to make payments to at least cover the interest and fees on the loan. 22
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you re ready! LET THE HOUSE HUNTING BEGIN 24
Buyer checklist Your wish list Write the details of your ideal property here so that you can keep your goal fresh in your mind when you are attending open inspections. Bedrooms: Bathrooms: Car space: Living areas: Outdoor area: Other must haves!: Does the property suit your needs? Does it have a garden/courtyard/balcony? Does the garden require much maintenance? Is there a private car space or garage? How secure is the property? Are there any visible problems such as cracks in the walls/ceiling/foundation; signs of rising damp or any other structural damage? Is the property close to schools, shops, public transport, parks and other amenities? Will you enjoy living in the area? Are big changes needed to make the property comfortable?
HAPPY HOUSE buying Do you have a question for us? Come see us in branch, call us on 1300 13 14 20 send us an email at info@secul.com.au or go online www.secul.com.au We also offer a Mobile Mortgage Lending Service We like making things easy, that s why we have experienced mobile lending specialists who will visit you at a time and location suitable to you! To arrange a mobile lender to come to you, call us on 1300 13 14 20. Endeavour Mutual Bank Ltd, ABN 43 087 650 011, AFSL and Australia credit licence number 238 426. Terms, conditions, fees, charges and credit criteria apply. Any advice or information in this brochure does not take into account your personal objectives, financial situation or needs and you should consider whether it is appropriate for you. Please review our Terms and Conditions and Financial Services Guide before acquiring the product.