First Home Buyer – Guide

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18 SIMPLE STEPS : HOW TO GET A LOAN WHEN BUYING YOUR FIRST HOME

When you partner with Blackk for your loan, we’ll effortlessly guide you through the 18 steps. We’ve got you covered with this simple step-by-step guide on everything you need to know to help you buy your first home.

 

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GET AN IDEA OF THE COST OF A HOME

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Get started by spending time researching online (realestate.com.au or domain.com.au) and do some drive-bys of homes you like the look of. Not only will this give you a ball park idea of what you need to spend to get the type of home you want, you also start the journey with realistic expectations.

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The next step is to understand your options around getting a loan. It’s important to have your ducks in a row here to make the process simple and stress free.

Meeting with a great mortgage broker is the key first step to understanding your finances. Doing it before you’ve found a home, will remove the uncertainty around what you can borrow, improve your understanding of the buying process, and help you make an informed decision.

If you choose to go directly to a bank, you risk not getting the most competitive loans from other banks and you may find you are not as well supported with expert guidance throughout the entire home buying process and beyond.

What to expect from a great mortgage broker

The role of the mortgage broker is to get your loan approved. A great broker will:

  • Match you with a good loan from the hundreds available from multiple lenders
  • Explain the process of how to apply for a loan and what to expect along the way
  • Set up your loan to minimise fees and charges
  • Handle the paperwork on your behalf so it’s a stress free experience

A good mortgage broker should have a deep understanding of finance and plans to be around in the future to help you with your needs as they change and grow. They will want to understand how you manage your money, what you plan to do today with your home, as well as what you might like to do in the future, such as renovating, upgrading your car, paying for a wedding or going overseas. The better they understand your plans, the more this will be taken into consideration so that your loan is working for you today and in the future – simply it will save you money.

Often, they will also be able to give you tips or hints based upon their experience, which will grow your wealth making you a step ahead of everyone else.

How much deposit do I need to buy a house?

Often this is one of the first questions we get asked. Although everyone’s situation is different, generally it’s best to have at least 5% of the cost of the home saved as a deposit.

Sometimes lenders will allow you to borrow 100% of the total cost, if a family member guarantees your loan (talk to your broker about this). However even in this situation, it’s important to still have some money saved as a buffer, to cover other unexpected costs that pop up along the way.

What is an LVR, or loan-to-valuation ratio?

If you’re buying a $500,000 home, and you had a deposit saved of $100,000, then your loan is $400,000. So your LVR equals 80%. If instead you had a $50,000 deposit saved, then your loan amount would be $450,000, so your LVR is 90%.

What is LMI, or lenders’ mortgage insurance?       

LMI is insurance that’s paid by you to protect the lender in the event you can’t make your required loan repayments and the property is sold for less than your outstanding loan.

You will need to pay LMI if your LVR is 80% or less (ie you’re borrowing more than $450,000 on a $500,000 loan). If your LVR is less than 80%, you won’t need to pay LMI.

The amount of LMI that you pay will vary based on 3 key factors:

  • Which bank you choose to take your loan with
  • The loan amount
  • The LVR

LMI is a one off payment, made when you take out the loan, that lasts for the loan term.

 How do I find out if I qualify for the First Home Buyers’ stamp duty rebate?

If you’ve never owned or part owned a home before and the cost of your home is under a set threshold, you may be eligible for the First Home Buyers’ Stamp Duty Rebate. There are requirements around length of time you need to live in the property and it’s different in each state so check the requirements here for QLD https://greatstartgrant.osr.qld.gov.au or NSW http://www.osr.nsw.gov.au/grants/complete/fhog.

Your solicitor can help with this. See more here on how First Home Buyers’ stamp duty rebates are paid.

I am worried I have a bad credit history, what should I do? 

We recommend you get a copy of your credit file before applying for a loan to check if there are any ‘marks’ against your name. These can be from not paying your mobile bill on time, missing a credit card or loan repayment or worse http://www.mycreditfile.com.au/products-and-pricing/.

If you do have a bad credit history, there are some things you can do to fix it, however it is likely to cost you. Talk to your mortgage broker.

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GET LOAN PRE APPROVAL THROUGH A MORTGAGE BROKER

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What is loan pre approval and why do I need it?

Before you start searching for a home, it’s important to know how much money you can afford to borrow and repay, and equally, what the bank will lend based on your personal circumstances. This is called getting loan pre-approval (or conditional approval). This knowledge will help steer you towards homes that are within your price range and provide you with better negotiating power.

Often a loan pre-approval will be valid for between 3 and 6 months. This will vary between different banks so once you have the pre-approval it’s time to go shopping. If you haven’t made an offer on a home inside the pre-approval period you can talk with your broker about what you can do to renew or extend it for another 3 to 6 months.

It’s important to know that when you get loan pre-approval, the bank has not given a 100% guarantee that they will lend you the money. A conditional approval is exactly that – it’s based on you meeting certain ‘conditions’ to have the loan fully approved. The two most common are:

  • A satisfactory property valuation, meaning that your loan to valuation ratio is acceptable to the bank and the mortgage insurer (see step 10)
  • No meaningful changes to your personal financial circumstances – if you have spent a significant amount of your deposit, changed job roles, overdrawn your transaction account or missed a credit card or personal loan repayment, this may impact your pre-approval.

Using the Blackk borrowing calculator  will give you a rough idea of how much you can borrow.

Read more  here  on the types of loans you can get, such as variable, fixed and interest only on our blog.

Can’t I just get a loan pre-approval from the Internet?

It’s important to know that some loan pre-approvals are more reliable than others. The more information you provide in a pre-approval, the more accurate it will be. The fast approvals online will have many disclaimers and conditions attached so they don’t give you an accurate picture of your ability to borrow money and have the loan approved with that bank.

At Blackk, we do a thorough pre-approval, meaning if there are issues with your personal financial situation that may affect your ability to borrow, we discover this early on.

How do I start a loan pre-approval with Blackk? 

Choosing Blackk to partner with for your loan, means you will have an effortless, speedy and intuitive home loan application process.

We ask you to complete the online loan application form, at your convenience, which speeds up the loan pre-approval process. This usually takes between 5 to 20 minutes depending on your personal financial situation and can be done from a tablet (iPad) or a laptop/desktop.

Send your mortgage broker your personal documentation

As soon as you have completed the Blackk online application form, please email the appropriate personal documents to [email protected] The table below summaries what is required for a typical loan, assuming you have an employer, however the team at Blackk will advise you on what you need to provide for your personal circumstances.

Income Expenses
Employment – current job

  • Address and contact number of employer
  • Name and contact of payroll manager or direct manger
  • Gross annual pay (before tax, excluding super)
  • Date started

Employment – past 3 years 

  • Address and contact number of past employers (3 years worth)
  • Name and contact of payroll manager or direct manger (3 years worth)
  • Date started and finished working

Transaction and savings accounts

  • Bank/s account/s are with
  • Current approximate balance/s as at today

Shares – total value

Superannuation

  • Name of super fund with the largest balance
  • Current approximate total of all accounts as at today

Motor Vehicle/s

  • Make and model
  • Approximate value
Personal loans

  • Bank loan is with
  • Balance of loan
  • Frequency of repayments
  • Repayment amount

Credit cards / store cards

  • Primary cardholder name
  • Lender
  • Credit card limit
  • Current balance owing $

 

Meet with mortgage broker to sign loan pre-approval paperwork

Once Blackk has received your personal documentation and online application, we will prepare your loan paper work which you’ll need to sign. It generally takes up to 5 business days from signing, for the lender to give the pre-approval.

What are the extra costs associated with buying a home?

Your mortgage broker should help you to understand the extra costs associated with buying a home. These can be substantial and can take a significant chunk of your savings. A list of the common fees are :

  • State government costs – stamp duty, property transfer fee, mortgage registration fee
  • Purchasing costs – solicitors/conveyancing costs, searches, building and pest inspection, engineering reports
  • Associated finance expenses – application / valuation fees and lenders mortgage insurance (LMI).

There are ways to minimise these fees which your broker can advise on.

 

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It’s a good idea to have a solicitor on hand so when you’re ready to buy, they’ll be ready to help you with what to do next. A short phone conversation to make sure you’re comfortable with them is all that is required at this stage. See step 7 for more information on what a solicitor/conveyancer does.

We can recommend a good, independent solicitor if you need one.

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START HOUSE HUNTING

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House hunting can be competitive, especially at the moment when interest rates are low. Lots of people are looking at buying a home – either to live in or for an investment and high demand from buyers means there are more buyers than sellers. Preparation is the key to success and use a checklist.

At Blackk, we are big believers in ‘you know when you see it’. We’ve bought and sold many properties over the years and almost always we have felt it in ‘our gut’ when we’ve walked through the front door of ‘the one’.   Don’t forget though that the price you pay for your property is really important for future financial freedom, so to ensure you are getting a good deal, make sure you look across a range of suburbs. Use suburb reports on Domain.com.au and check the price of similar houses that have sold in the area on realestate.com.au.   To save time drive by potential houses during the week to check them out so by Saturday you have narrowed it down to only the open houses with potential.   If you can, try a night time stake out to see what the neighbourhood is like.

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MAKE AN OFFER 

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This guide is written for first home buyers who are buying a house that’s listed for sale, as opposed to auction, however we’ve included a short guide on auctions.

What do I do when the house I want is for auction?

Sellers who choose to go to auction usually do so because there is something unique about their property, or when they feel that the market conditions will give them a better price.

We don’t want to turn you off auctions, however be aware the process is different and there can be more risks involved. You’ll need to pay more upfront costs before you attend the auction, then on auction day you may not be the successful bidder. For example, you need to have a building and pest inspection completed before auction day, which alone costs up to $700 (see step 11).

Even with a loan pre-approval the lender won’t guarantee the loan, until you are unconditionally approved (see step 12) which means if you’re the successful bidder, you are obligated to buy the property and you may not have the loan.

We advise clients to make a conditional offer on a house before it goes to auction, that way you are only obligated to buy if you get the finance. It’s best to talk to a mortgage broker. 

How do I make an offer on a house for sale?

Making an offer on a property is a bit like a game of chess where each party is waiting to see what the other party is going to do. There are no set rules on what you can offer.

When ready, make an offer verbally or in writing to the real estate agent, for what you feel the home is worth. You may choose to offer a starting price of less than the asking price or below what you are willing to pay.

The real estate agent will liaise with the seller (vendor) on your behalf.   The seller may accept or refuse your offer. Often it can go back and forth so the real estate agent will liaise with you if any further negotiation is required.

It can be nerve-racking so be prepared for some butterflies and potential excitement or disappointment. A good finance broker will talk to you along the way for support.

What do I need to consider when making an offer on a house for sale?

Other than the value of the property and what you are prepared to pay for it, there are generally at least 4 other things to consider before making an offer. These are:

  • The building and pest report
  • A finance clause
  • A settlement date
  • Other special conditions such as what fixtures will remain (ie curtains).
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Ask the real estate agent for a copy of the contract and have a solicitor or conveyancer review it before you go to make an offer. A solicitor/conveyancer assists with the legal side of buying a home. They act on your behalf with the parties selling your home.

A solicitor / conveyancer helps with the following:

  • Advice on the process and what to expect, such as cooling off periods, tenants in common, sole tenants and joint tenants.
  • Ensures the contract has the agreed terms
  • Arranges payment of the deposits
  • Liaises with the seller / vendor on your behalf
  • Organises council and government searches
  • Calculates settlement payments owing (i.e. amounts for stamp duty, transfer fee’s, rates and water adjustment’s)
  • Arranges for the home to be transferred into your name after settlement.

Your solicitor will thoroughly review the property contract for you, but it’s important you also take a good look. Make sure the contract has your full and complete names on it (including middle name) and correct spelling. The finance and settlement dates must be achievable with your lender and your broker will advise you of this.

If you’ve already completed your loan pre approval (step 3) the time required to have your finance unconditionally approved should be between 1 to 3 weeks faster than if you haven’t had pre approval.

At Blackk we recommend you also includes these clauses in your contract:

  • Property to be professionally cleaned prior to settlement (i.e before you take ownership of the keys)
  • Responsibility of the owner to keep it fully insured up too and including the day of settlement at which point it becomes the responsibility of the purchaser
  • A satisfactory pre-settlement inspection (gives you the chance to review the property before you take ownership of the keys to ensure everything is in order)
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When should I take out home insurance when I’m buying a house?

A good mortgage broker should help you arrange home insurance. If you’ve followed the Blackk tip from step 7, it’s the owners responsibility to keep the property fully insured up to and including the day of settlement, so you take out insurance from the following day onwards. If you have not arranged this with the seller, your insurance needs to commence on the day both parties sign the purchase contract. If you are buying a unit/townhouse, insurance may be covered by body corporate.

At Blackk, we have an agreement with Allianz where by they provide our clients with free building cover for up to 90 days during the settlement period. They also allow you to choose a flexible pay by the month option at no additional cost. This really helps with budgeting. Speak to Blackk to find out more.

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How much deposit do I need to pay after I make an offer on a house?

There may be up to three stages required for you to pay a deposit when buying your first home. The first (this step) is paid when you sign the contract and the second is paid when the contract goes unconditional (step 12). The third payment covers the shortfall between what you have already paid and what you owe and this is paid upon the settlement of your home (step 15).

Often, one of the terms in a property contract requires you to pay a refundable deposit, and this is the deposit required at this step. In most situations, we see the most common amount is between $1,000 to $10,000. This deposit is paid within the 24 hours of signing the contract and is paid into the real estate agent’s trust account.

Send your mortgage broker the signed/dated contract and copy of the receipt for the deposit paid.

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What is a property valuation and how do they come up with the valuation amount?

A property valuation is done on behalf of the bank, where they use a licensed property Valuer to assess how much your new home is worth. To order this, your mortgage broker will provide a copy of your contract which they provide to the Valuer. The Valuer will use this contract along, sales of comparable properties and one of the three ways shown below,  to get an idea of what your property is worth.

There are three ways that banks do valuations:

  • Visit the actual property for the inspection – The most accurate is when the Valuer visits the property and looks at the number and size of rooms, layout, presentation, fixtures and fittings and council zoning
  • Drive by – the Valuer looks at RP data which provides details of the property, then they do an approximation based on the outward appearance after a drive by
  • Modelled estimate – this is where the Valuer uses google earth and other tools such as RP data to assess the value.

A ‘comparable property’ is determined as follows:   If you are buying a 3 bedroom home, on 600 square meters in a suburb in Brisbane, the Valuer will search for similar properties in the suburb that have sold in the last 12 months.

Who pays for a property valuation?

Different lenders have different policies on who pays for the property valuation.   Some lenders already have them included in the loan application fee while others request the buyer pays. They can be up to $440. Your mortgage broker will let you know the cost of a valuation between different banks.

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What is a building and pest inspection?

A building and pest inspection is completed after signing the contract and is done by two separate experts. The building specialist will check the structure of the roof, walls, floors, fences and any adjoining buildings, look for things such as cracks, faults, asbestos and movement. The pest expert will check for terminates, white ants, borers and other pests.

The inspector is working for you, and it can be really useful to attend the inspection so you can ask questions to see exactly what they are talking about.

Why do I need a building and best inspection?

It’s likely your home is going to be one of the biggest investments you make in your life. Unexpected building problems can cost tens of thousands of dollars to fix. By getting a building inspection, you’ll have a really good idea of the property’s condition before buying.  If there are issues it will allow you to get quotes for the repairs and you may choose to negotiate with the seller if they are significant.  Try to book in your building and pest inspection as soon as you can. They should be registered with the Building Services Authority. This should be done before your loan goes unconditional.

How much does a building and pest inspection cost?

The building and pest inspection will vary in cost depending on the size and location of the property. As a guide, for most units, townhouses and houses in metropolitan areas, the cost varies between $500 to $750. You will need to pay for this yourself upfront and it can not be included in the loan.


A tip from Blackk:  When you are buying a house, it’s important to keep perspective. It’s likely that every property will have issues, especially if they are older. You want to be able to understand what the issues are and make sure they are manageable in the future. We recommend using a building and pest inspector who will take the time to explain what is been identified and to put into terms you can understand.

Have solicitor/conveyancer notify the vendor when you are satisfied with the building and pest report.

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MORTGAGE BROKER ARRANGES UNCONDITIONAL LOAN APPROVAL 

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What is unconditional loan approval?

Unconditional loan approval (also referred to as formal or final approval), means you have satisfied the banks criteria as outlined in step 3 and your loan is approved.

Once you are satisfied with your building and pest report, your mortgage broker will arrange with the lender for your loan to go unconditional, and then you’ll need to:

  • Forward the loan approval letter to your solicitor (this will be emailed to you via your mortgage broker after your loan has gone unconditional). Your solicitor will then tell the seller’s solicitor that your finance has been approvedand that your purchase is now unconditional. This means that both parties can now get ready for settlement. Often a deposit is also due at this time so confirm with your solicitor about how to pay it (step 13).
  • Meet with your mortgage broker to sign the loan documents – Once the lender has approved your loan they will then begin the process for preparing your loan paperwork (also known as loan documents). These can take up to 5 businessdays to be sent. These can be sent either directly to you or to your mortgage broker. Either way it is best to meet with your mortgage broker to sign them together. It’s likely that some documents will need your signature witnessed by a JP or a solicitor.
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Your second deposit is usually required when your finance has gone unconditional. This is normally between 2% to 5% of the purchase price. Speak to your solicitor if you have any questions regarding payment.

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With your new loan, it is likely that you will have transaction or offset accounts set up that are linked to your loan. You may also have applied for a new credit card. Your mortgage broker will advise on how best to use these to make your finances easy to manage and to save on interest, fee’s and charges.

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SETTLEMENT TIME (YOU OWN YOUR HOME)!

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This payment will cover a range of costs, such as stamp duty, transfer fees, solicitor fees, adjustments for rates and water and the deposit you are making on the home loan.

At the settlement, there will usually be a shortfall between the amount due, and what you have already paid through your first deposits and what is available in your loan.

For example, you buy a house for $500,000, you’ve paid $16,000 in deposits, your loan amount is $450,000 + LMI, and you have other costs (solicitor fees, stamp duty, mortgage registration fees and building and pest) of approximately $4,500. At settlement your last deposit owing will be $38,500

Purchase price:           $500,000

LESS

Loan amount               $450,000

Deposits paid              $16,000

 

PLUS

Buying costs                $4,500

FINAL DEPOSIT            $38,500

 

There are 2 main ways to pay this deposit:

 

  • Option 1 – Transfer the funds to your linked offset / transaction account at least 3 business days prior to settlement and authorize the bank (by signing the paperwork included in the loan documents) to act on your solicitor’s instructions to draw down the funds.
  • Option 2 – Transfer the funds to your solicitor’s trust account at least 3 business days prior to settlement and they draw the cheques for you.

We recommend Option 1 as we’ve found it’s more convenient and simpler for our clients.

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Bank certifies loan paperwork

At this step the bank checks that the submitted and signed loan paperwork is correct then certifies it for settlement. The bank contacts your solicitor to book in settlement.

What is settlement?

There are two settlements that occur, the home settlement and the loan settlement. These happen simultaneously.

Home settlement is where you have paid the seller for the home, the property is transferred into your name so you now own it.

The loan settlement is where the loan has been drawn down to pay for the house, so this is the point from where interest is charged o your home loan.

Your solicitor attends settlement on your behalf, with your lender, and your seller’s solicitor and lender.

You will then receive two settlement letters, one from your solicitor and one from your lender.

  • From solicitor – Showing payments made including rates adjustment, stamp duty and transfer fees (step 15). This will take up to one week to receive.
  • From lender – cheques issued for the deposits paid. This will take up to 3 weeks to receive.

It’s a good idea to check the payments made to confirm it is as expected.

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The real estate agent will contact you on settlement and arrange for you to take the keys!

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How soon after settlement do I need to start making loan repayments?

Once your property has settled, your loan will also settle. This means you will need to make repayments as set out in your loan contract ie weekly, fortnightly, monthly. If you are paying your loan weekly, it is likely your first loan repayment will be made one week after settlement.

Confirm with your mortgage broker when your first repayment is due. Before the first repayment is due, check to ensure you have enough to cover the repayment and ensure it is coming from the correct account.

Congratulations!

 

* Please note, this is a guide only and your personal circumstances may deviate from this

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