How do you buy a house?

[Bison]

Hi All

I am 22 and have a steady fulltime job on roughly 85k a year

I have 20k saved in the bank, which I've accumulated over the past 12 months, prior to that my bank account was drained weekly on general young people stuff

I had a credit card that I maxed out at missed some payments due to lazyness, but the balance is now clear and have no debt.

So, excuse me being naive, but what is the process of buying a house? Im not asking for advice on whether you think I'll get a house or not, or whether now is a good time to buy or not, I just want to know what happens inbetween someone thinking "i want a house" and moving in day

ie, do you find the house first? then go to the bank and say I need this much for the house?
do you go to the bank first, say I want a house, then get approved, then go looking? I assume you wouldnt get the money until the house was purchased?
Is it a mix of both?
How much of a % deposit do you need?
Whats the avg turn around time?

So all of these type of questions, just assume I know nothing about anything (which is actually quite accurate) and explain to me how someone gets a house

Thanks all

 

[Lyyynnnchy]

Go to a bank and apply for a home loan. They will tell you how much you can borrow. General rule of thumb is you need a minimum 10% deposit these days. I had 5% 3 or so yrs ago but it's tightened up since then

 

[Off Tap]

The way things are looking in Europe the banks are going to start to tighten up their lending like they did post 2008. Like Lyyynnnchy said you're going to need more deposit and they won't take on as much risk.

If your going to look at an apartment it might be higher still.

Depending on your card limit, you might want to get rid of that as well as it will effect your loan capacity. If you have a $10k card limit it will take $40k off your max loan amount. I'm pretty sure it's a factor by 4 that they use.

 

[Frank Grimes]

The first thing you need is to determine is how much of a mortgage you could comfortably afford to pay (or willing to pay). To do this I suggest to create a budget of your anticipated expenses. I would first look at your common expenses every month (e.g Groceries, petrol, phone, utilities). Then think of those once a year expenses such as Council rates, Registration, Insurance etc and divide them by 12 and add that to your monthly expenses. Subtract that from your monthly income and that should leave you an amount which you can spend on the mortgage and luxuries.

Once you have a budget you can now determine how much you want to spend on the mortgage. You are going to have to decide what type of life style you would like to lead. You could take on a bigger mortgage to get a bigger or better house and ghave fewer outings or you could go for a smaller mortgage to get a humble home and have enough money left over to enjoy yourself. To get an idea how much the repayments can be there are many loan calculators on the internet if you look.

Now once you have an idea how much you are willing to pay on the motgage you should do a preliminary look around for the type of house/unit you want in your price range. If you can't get what you want in the price range then you may have to make a compromise. That may mean looking couple of suburbs further then your ideal location or going for a unit instead of a house close to your ideal location.

Once you have an idea what you are looking for then contact a bank to a get a pre-approval from the bank. Once they confirm that they will grant you a loan for a certain amount you can start to look for a house/unit to buy.

The rest is easy and fairly straight forward. Once you find the house you wish to buy inform the Estate agent you want to make an offer. The estate agent will present the offer to the vendor and if they say yes then you will have to sign all the contracts etc. Once you sign I think you have to pay $1000 on the spot and there is a cooling off period ( I forgot if it's 3 day or a week). The believe $1000 is incase you back out and acts a compo to the vendor. If you pull out during the cooling off period then you will only lose the $1000. Once the cooling off period is passed then you are committed to making a deposit by a certain date (provided the house passes structural checks, finiances approved [the pre-approved loan should take care of that] and any other conditions are accepted). Then finally is the settlement date where the rest of the money is transferred to the vendor and the house is now legally yours.


As a few people already mentioned. The banks have tightened their lending criteria and you usually need at least a 10% deposit these days.

 

[Nardz]

go and have a chat with a mortgage broker - if u find a good one they'll make time for you and help you work out stuff like that and a general chat to give u advice etc...

if you find a crap one they'll just give you a form and say "fill this and email it to me and i'll tailor a loan to suit you"

 

[Leper]

First thing to learn is that real estate agents are an extremely honest bunch and strictly abide by a code of ethics.

When you offer x and they tell you there's another offer of x plus $5k, understand that there really is such an offer and up your offer by $10k.

Also understand that when they tell you the asking price is "offers over $500k", then an offer of $510k will be accepted 99% of the time.

 

[Brad Goodman]

A lot of 1 bedroom properties are (I assume) less than 50 square metres. Who buys these, seeing as a bank won't lend to you for a property smaller than that?

 

[Scotland]

First thing to learn is that real estate agents are an extremely honest bunch and strictly abide by a code of ethics.

When you offer x and they tell you there's another offer of x plus $5k, understand that there really is such an offer and up your offer by $10k.

Also understand that when they tell you the asking price is "offers over $500k", then an offer of $510k will be accepted 99% of the time.

The selling agent wants a sale much more than he/she wants the best price for the seller.

People get too emotionally involved in buying houses and end up offering more than they have to. If you go in with the mindset that a house is wort $x and you are willing to offer no more than $y then be prepared to stick to your guns and walk away with no sale.

If you offer $450k on a $500k place chances are the seller may tell you to get stuffed but if they've got their heart set on $500k and you offer $485k and they aren't getting any other interest the agent is going to push for the sale rather than more months sitting on the market hoping for the extra $15k.

 

[Papa G]

The selling agent wants a sale much more than he/she wants the best price for the seller.

People get too emotionally involved in buying houses and end up offering more than they have to. If you go in with the mindset that a house is wort $x and you are willing to offer no more than $y then be prepared to stick to your guns and walk away with no sale.

If you offer $450k on a $500k place chances are the seller may tell you to get stuffed but if they've got their heart set on $500k and you offer $485k and they aren't getting any other interest the agent is going to push for the sale rather than more months sitting on the market hoping for the extra $15k.

Yep - $15,000 extra for the vendor is a hell of a lot more than the extra 1.5-2% for the seller. The difference between 2% of $485,000 and 2%$500,000 is negligible to the agent.

 

[Dan Moody]

You mentioned missed payments on a credit card?
First thing I suggest, is contact Veda to get a copy of your credit report. If you have missed payments that have hit your Veda file, it will make it very hard to get an a.i.p.
Some banks will lend up to 95% lvr on a property but it is getting difficult. Are you in a position to get a parental guarantee? If you have a parent that will do this, it will increase your borrowing capacity.
My advice is this:

• Get your credit file as above
• Book in to see a home finance manager at a bank to get your borrowing capacity
• Have an idea of how much you want to borrow
• Make sure your last 6 months of accounts have been in order, no overdrawn accounts, missed payments, regular savings pattern etc

See a broker LAST, they make trailing commissions from loans and are generally uncontactable once your loans approved if you have any queries later. This is where a good relationship with your bank will benefit you.

 

[Visions]

You mentioned missed payments on a credit card?
First thing I suggest, is contact Veda to get a copy of your credit report. If you have missed payments that have hit your Veda file, it will make it very hard to get an a.i.p.
Some banks will lend up to 95% lvr on a property but it is getting difficult. Are you in a position to get a parental guarantee? If you have a parent that will do this, it will increase your borrowing capacity.
My advice is this:

• Get your credit file as above
• Book in to see a home finance manager at a bank to get your borrowing capacity
• Have an idea of how much you want to borrow
• Make sure your last 6 months of accounts have been in order, no overdrawn accounts, missed payments, regular savings pattern etc

See a broker LAST, they make trailing commissions from loans and are generally uncontactable once your loans approved if you have any queries later. This is where a good relationship with your bank will benefit you.

Correct on the credit check point FERRIS. If the OP has missed payments that have hit their VEDA file, it will make it almost impossible to obtain a loan with any mainstream bank until that credit impairment disappears, especially if it involves LMI. Banks will see it as too high of a risk.

Apart from the minimum 5% deposit with lenders (most of them still are allowing 95% LVR), the OP will also need to take into account stamp duty, transfer of land, adjustment of rates, conveyancing, this can add up to almost the size of a deposit, even though it sounds like the OP is eligible for the First home owners grant of $7000. Then there is LMI to also consider (though this can be capped to the loan).

I disagree on your broker point FERRIS (you might consider me bias as I am a broker). Why would a broker cut off communication from a client? If they do, the client could walk away anytime to a new loan, thereby the broker loses the trail, and not only that, the client could have new properties down the track that need financing or have friends that they could refer that need financing. End point, if you lose a client you lose future potential business. I suppose there are some brokers out there who might only care about the current loan, and couldn't care what happens later on, but the decent ones see the value in keeping an ongoing client happy.

This is my suggestion to the OP and steps involved.

1. Get a copy of your Credit Check from VEDA. You can get it for free from their website.
2. If clear, then see a bank or good mortgage broker to find out the max you can borrow, and get a pre approval. If VEDA come back with a credit impairment, its not the end of the world as some lenders, i.e Macquarie will still lend to borrowers for low value defaults that have been paid.
3. The bank manager/broker will give you an idea on how much deposit and other costs (stamp duty, etc) are needed for the maximum borrowing capacity. If you don't have this amount now, you at least have an idea on how much more you need to save to get to your target. As Ferris pointed out, if you are able to get a parental guarantee, these costs can then be borrowed instead of needing to be saved.
4. With your borrowing limit known, you can then go out and find a property, whether at auction or private sale.
5. Once purchased, the OP signs the contract of sale and leaves a deposit. Most important thing here is have them add a clause in the contract "subject to finance approval within 14 days". This allows you time to obtain the unconditional approval, and if for some reason the lender doesn't give it to you, you can opt out of the contract without losing your deposit, etc.
6. Advise the bank/broker the property has been purchased, and they can then obtain unconditional approval.
7. Engage the services of a conveyancer who will do all the legal work for you.
8. The conveyancer and lender then confer with each other, do all the paperwork, and money exchanges hands on settlement date, which is the date the OP gets the keys to the property.

As for turnaround times:

From the time you see a bank/broker to getting pre approval it should take a week, or two at the max (depending on how quick you are with the relevant paperwork).

Once you purchase the property, they will have a settlement date which can be 30, 60 or 90 days from date of the sale. This is negotiable, and I usually tell people to allow at least for a minimum 60 days, as if you have a 30 day settlement and something gets delayed (Murphy's law) in the process and you miss the deadline, you are liable for penalty rates.

 

[Dan Moody]

Hi Visions, nothing meant by the broker comment (I'm a Bank Manager so I have a home lender work for me) just that the quality of brokers round my area leave a lot to be desired. (tend to blame the banks for everything)
I get some of my best deals from brokers, love doing the sign-ups as I get all of my insurances from them.

 

[Visions]

Hi Visions, nothing meant by the broker comment (I'm a Bank Manager so I have a home lender work for me) just that the quality of brokers round my area leave a lot to be desired. (tend to blame the banks for everything)
I get some of my best deals from brokers, love doing the sign-ups as I get all of my insurances from them.

I tend to find most lenders are pretty good to deal with, their support centres are actually okay and setup to run smoothly, its the conveyancers I have trouble with. You can get a mixed bag there depending on who the clients engage. They involve you in things you shouldn't be involved with.

 

[year of the roo]

Hi Visions, nothing meant by the broker comment (I'm a Bank Manager so I have a home lender work for me) just that the quality of brokers round my area leave a lot to be desired. (tend to blame the banks for everything)
I get some of my best deals from brokers, love doing the sign-ups as I get all of my insurances from them.

Sounds fair enough to me. They usually are.

 

[i_hate_scams]

determine how much repayment you want to make (dependent on your income and lifestyle you want)
go to a mortgage broker and work out the different scenarios you can face. ie increase in interest or types of interest loans, etc. your mortgage broker will also look at your financial situation and give you a per-approved loan, or an amount that you can borrow. But that doesnt mean you have to borrow all that, it is just your maximum.
make sure you dont over extent yourself, your 1st property is not the last property you would buy, most likely your second one is the one you really want.
my view is to use a lawyer when you are buying.
deposit is usually 10% of the property value. (you need a cheque book or a bank cheque of around 10% of the estimate sale value prior to auction, the real estate agent will tell you approximately how much prior to auction)
when buying, have a good look at the property, along with things that you usually dont look at like stumps, signs of movement, etc. If it is within your price range and you are really interested ask for section 32 and give it to your lawyer. if it is an auction but you are really interested you might ask the agent to pre-sale, give him a price and they will speak to the vendors.
do your homework on the prices in the area so that you only pay market value. dont let the agent hurry you, and remember you have a 3 day cooling off period for private sale, but you dont for auction, so make sure you are sure when bidding at an auction. (there are ways to get around but dont get yourself in the situation in the 1st place)
good luck
and oh if bidding at auction either bid firm from the start or come in at the end, but remember set a limit (based on what you can afford and market value) and stick to it.

 

[Dan Moody]

Sounds fair enough to me. They usually are.

Getting good interest on that money stashed under your mattress are you?

 

[CranktheAnchors]

Not sure if this is the best thread to put it in but anyway. What is the standard rental yield for properties. I'm getting $240 per week and want to use an average rental yield to roughly work out the value of my property.

Cheers

 

[bunsen burner]

Not sure if this is the best thread to put it in but anyway. What is the standard rental yield for properties. I'm getting $240 per week and want to use an average rental yield to roughly work out the value of my property.

Cheers

Not really the way to work out the value for residential property. Yield in capital cities avergae about 4-5%, higher yield for cheaper properties within cities, lower yield for more expensive. The country towns have higher yields.

Let's say an aveage yield is 5%. That means a $500k property rents for $500pw. Sounds about right. But then if this holds true a $1m property should rent for $1000pw. Realistically we know it will only rent for about $800 and a $2m house maybe $1300. It's just not a liner scale so shouldn't be used.


Go to realestate.com.au and find comparitive properties. Take in mind many are over valued so value at what the lowest price of the comparitive properies are selling for and take off 5%.

Will get you a guestimate.

 

[CranktheAnchors]

Not really the way to work out the value for residential property. Yield in capital cities avergae about 4-5%, higher yield for cheaper properties within cities, lower yield for more expensive. The country towns have higher yields.

Let's say an aveage yield is 5%. That means a $500k property rents for $500pw. Sounds about right. But then if this holds true a $1m property should rent for $1000pw. Realistically we know it will only rent for about $800 and a $2m house maybe $1300. It's just not a liner scale so shouldn't be used.


Go to realestate.com.au and find comparitive properties. Take in mind many are over valued so value at what the lowest price of the comparitive properies are selling for and take off 5%.

Will get you a guestimate.

Yes yes i understand what your saying. Thanks for your help.

 

[Lyyynnnchy]

Not sure if this is the best thread to put it in but anyway. What is the standard rental yield for properties. I'm getting $240 per week and want to use an average rental yield to roughly work out the value of my property.

Cheers

Wow thats the worst way to get a valuation for your property! Bunsen Burners got the idea of viewing comparable houses for sale on realestate.com.au. You can also look in the sold section, a lot wont have the actual sold price but you can contact the agent to find out.

If you're lazy, get an agent to come to your house and give you an appraisal...then take 5-10% off that. If you want a more accurate figure, get an appraisal done by an agent, a valuation by your bank and go for the amount smack bang in the middle.

Comparable prices on realestate.com.au would be the most accurate though. IMO if I was looking for a valuation for my IP I would be able to come up with a more accurate figure than both the agent and the bank. Both have underlying motives that cloud their judgment.

 

[Big Jono]

In the process of buying a house at the moment, stressful as.

To anyone else reading this and wanting advice mine is to get a good mortgage broker and talk their ear off first. Get them to advise you on hom much you can afford then get the pre-approval for your loan done.

Then line up a conveyancer, then go house hunting!

 

[Scotland]

In the process of buying a house at the moment, stressful as.

To anyone else reading this and wanting advice mine is to get a good mortgage broker and talk their ear off first. Get them to advise you on hom much you can afford then get the pre-approval for your loan done.

Then line up a conveyancer, then go house hunting!

A mortgage broker will be able to advise you roughly how much you will be able to borrow.

How much you can afford is something you really need to work out for yourself. I borrowed a fair bit less than what the bank said I could borrow at the time, and I reckon a few people will find themselves living uncomfortably if they borrow to their limit.

 

[Big Jono]

A mortgage broker will be able to advise you roughly how much you will be able to borrow.

How much you can afford is something you really need to work out for yourself. I borrowed a fair bit less than what the bank said I could borrow at the time, and I reckon a few people will find themselves living uncomfortably if they borrow to their limit.

Oops yea that is what I meant. How much you can afford to borrow given how much you have for deposit and your income etc.

We ended up spending 25k less than our top range of what we were prepared to and got a great place so very happy.

Just waiting for settlement now

 

[Bombers_Forever]

In the process of buying a house at the moment, stressful as.

To anyone else reading this and wanting advice mine is to get a good mortgage broker and talk their ear off first. Get them to advise you on hom much you can afford then get the pre-approval for your loan done.

Then line up a conveyancer, then go house hunting!

I am going through the same thing. It is a case of how much my lender will let me borrow and then picking the loan.

I am planning to meet with them at a branch - any advice as to what to take to the meeting. Do you just need figures like your income, expenses, liabilities etc or do you need more than that. I just don't want to waste my time in the meeting.

 

[Visions]

I am going through the same thing. It is a case of how much my lender will let me borrow and then picking the loan.

I am planning to meet with them at a branch - any advice as to what to take to the meeting. Do you just need figures like your income, expenses, liabilities etc or do you need more than that. I just don't want to waste my time in the meeting.

Don't know how the banks go about in an interview, but as a broker I need to know the income and any liabilities (any existing loans, i.e. home, personal, car), and any credit cards that clients may have. With expenses, generally not needed as banks have their own set figures of working out the "general" monthly expenses depending on your marital status and how many dependents you have.

Make sure if you are seeking conditional approval, that the bank does a "real" conditional approval, by that I mean the verification of your income details, credit checks, etc and not just one of those "based on the information you gave me, you can borrow $X amount." If they don't do "real" conditional approvals, it's basically worthless, as there might be a surprise later on after you have purchased something and find out the loan has been rejected for some reason or another.

Also you might want to consider things like offset accounts linked to home loans which could lead to paying off the loan quicker. Also ask about Pro Packs. These are packages that charge you a set amount per year which generally include offset accounts, credit cards, and you get a discount off the variable rate which can be quite large depending on your circumstances, and might be worth the charge.