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As a first home buyer, there’s much to learn. From establishing your borrowing power to the process of exchanging contracts, it’s hard to know it all. Here we look at what knowledge is handy to have when it comes to making smart decisions about the purchase of a property.
1. There’s no cooling off period when buying at auction
For private sales, most Australian states and territories allow for a cooling-off period once you’ve exchanged contracts and paid a deposit. This doesn’t apply if you buy at auction.
Once the hammer falls, it is taken that you accept the contract of sale in its current form. The seller and buyer are legally obliged to exchange contracts and complete the purchase. Backing out will see you lose your deposit and you may be held liable for any losses the vendor incurs re-auctioning the property.
For this reason, it pays to have a solicitor or conveyancer review the contract in advance. Any amendments you wish to make, such as the size of the deposit or the settlement period, need to be agreed by both parties before the auction. Don’t assume fittings, fixtures and appliances like the blinds or dishwasher will be included with the house unless outlined explicitly in the contract.
2. You must pay a deposit on auction day
If you win at auction, you will need to have the deposit ready to pay straight away. Typically, you’ll be up for 10% of the purchase price but check the contract of sale.
Confirm in advance how to pay the deposit as this will depend on the terms and conditions set by the seller or real estate agent. Financial pre-approval is also a good idea because it gives you a clear view of your borrowing power and helps you set your bidding limit. Your Yellow Brick Road mortgage adviser can step you through this process.
Get it right from the start with professional help.
3. A low LVR will get you a better interest rate with some lenders
It’s worth shopping around because the definition of a good borrower may vary from one lender to the next.
A sizeable deposit and a low loan-to-value ratio (LVR) is one of several factors you might be able to use in your favour to secure a discounted interest rate. Owning 20% or more of the property helps to present yourself as an attractive borrower, which gives you increased bargaining power.
Other factors that might get you into the good books include a regular income that comfortably covers household expenses and taking out a principal and interest home loan (rather than interest-only).
It’s worth shopping around because the definition of a good borrower may vary from one lender to the next. Fortunately, when you work with a professional mortgage broker, you have someone who can do this legwork for you. Yellow Brick Road mortgage brokers know where to find the best interest rates and loans to suit your home ownership goals.
4. The deposit and stamp duty aren’t the only costs associated with getting a home loan
On the top of the deposit and stamp duty, you’ll need enough funds for additional expenses like building and pest inspections, legal fees, application and valuation fees, home insurance, removalists, rate lock, title insurance and transfer fees. These are the most common fees, but your mortgage broker will let you know which ones apply to your home loan.
If your deposit is less than 20% of the purchase price, you’ll need to factor in the cost of taking out lenders mortgage insurance (LMI). LMI is an insurance policy that protects lenders in case borrowers’ default on their loans. Depending on factors like loan size, deposit size, type of loan and insurer, LMI can run into the thousands of dollars.
5. Finance pre-approval gives you a competitive edge
Getting pre-approval by a lender for a specified amount before you start house hunting can have many benefits. It helps you focus on looking at homes you can afford and avoid the heartache of attaching yourself to a property you later realise you can’t comfortably afford.
When you’ve found a home you’re serious about, having pre-approval puts you in a good bargaining position with the seller and helps to speed up the time to exchange contracts. Talk to your Yellow Brick Road local representative about where you stand and what would be a good amount to borrow.