I was speaking to a friend who was talking about her recent purchase of a home with her long-term partner. And it dawned on her. She had absolutely zero idea what needed to happen next and what it all financially meant for them, for her. It was the cliché “he took care of all of it” situation. Which can be great, but it is also important that we don’t rely on our partners to just “take care of” all things financial in our lives, and not have our own understanding of personal finances. This isn’t an uncommon scenario across women in all walks of life and professions, so if you fall in that camp I recommend checking out my post on Steps to being a financially independent woman. Meanwhile, I have highlighted some headline things you should definitely know a bit about when embarking on property buying, whether by yourself or with your partner.
Wait! Before you sign
Be 100% sure you know what you are buying. Too often people get caught up in marvelling at the beautifully presented house, and then commit to buying or making an offer before doing some basic due diligence. Check for:
- Basic things that aren’t working like stoves, taps, power outlets
- Structural concerns – you may want to pay for a building inspection by a qualified inspector if you have an inkling that there might be something not quite right or if the property is particularly old
- Major items like hard rubbish, that you expect will be removed once settlement happens and you get the keys
People often don’t think about these things until after signing, and by then it’s too late to negotiate having the seller fix that leaky bathroom sink, etc.
Also request from the agent a copy of the contract and section 32 statement as soon as you find a place you are serious about buying. These documents will contain any special conditions imposed by the seller as part of the sale, and disclose key things about the property that the seller is obliged by the law to tell buyers about. For example, if the property has a heritage overlay on it, this usually means there are strict limitations to structural renovations you can make to the building. This will be disclosed in the contract and section 32 statement. Find a qualified property conveyancer or lawyer to run their eyes over the documents for you.
In a competitive property-buying market, it is likely that a seller won’t negotiate pricing with you even if you do find any major defects. But at least you can buy knowing that you need to put aside additional funds to fix the issues yourself, rather than be unpleasantly surprised after the fact.
Another important reminder – if you happen to have negotiated anything from the seller via the real estate agent, make sure this gets documented and included in the contract of sale before you sign. Otherwise there is actually nothing to legally bind the seller to do whatever they have agreed to, even if the agent assures you it’s all fine. If it’s not written in the contract, there is zero obligation on anyone’s part to fulfil any promises!
This is important if you’re buying a property together with someone else, whether it be a joint investment with a friend or a purchase with your partner. Deciding whose name and in what capacity the property is held under can have longer term financial planning implications. If you haven’t figured this out 100% yet but are ready to commit to buying, then make sure you have the contract signed with the phrase “and/or nominee” inserted. This buys you time to potentially add or change the name under which the property title will pass.
Another thing to be aware of is the difference between “joint” owners and “tenants in common” on the title documents. Joint tenants means that you each hold an even 50/50 split in the property and if one passes away, the other automatically receives the deceased’s share of the property. Tenants in common means that you can nominate whatever denomination you want to share in the ownership – eg. 30/70. The key feature of owning properties as tenants in common however, is that if a person dies their share does not automatically pass to the other owner. Instead it passes to whoever the deceased nominates under their will to receive their share of the property. This is not possible under joint tenants.
A good mortgage broker can help you compare the different types of loans available across all the banks and loan providers, and help you choose the right one suited to your personal circumstances. Mortgage brokers don’t work for a particular bank so a really good one will provide you with quality independent advice. However keep in mind brokers do get paid upfront and ongoing commissions by the organisations they sell a loan for, so if you don’t sense your broker has your best interests at heart then either find another one or take their advice with a grain of salt.
In short, make sure you think about:
- How much debt you can afford to pay each month, based on your monthly income minus fixed expenses
- What the features of your loan are – ie. interest rate, discounts you can obtain on the rate, annual loan fees, early repayment fees if any, whether the loan comes with an offset facility, etc. Offset accounts are particularly important because they allow you to use the amount of money you have sitting in the nominated account and offset it against the amount of debt you have borrowed, to reduce the interest you have to pay.
- How much extra cash buffer do you have if interest rates go up, even by a little bit? You don’t want to cut it too fine by going ahead with a loan that you can only just afford to pay now, and then if interest rates go up you end up in financial strife.
What your legal adviser is doing in the background
Your legal adviser prepares all things necessary to transfer the property from the seller to you, once you’ve forwarded them your signed contracts and engaged them for their services. This legal process is known as conveyancing and can be performed by either property law firms or by qualified conveyancers. If you’re looking for one, here’s a plug for Wealthsource Conveyancing, a firm that I part own. You will usually pay a fixed fee for this because the conveyancing process is quite standardised across the various types of properties.
Your conveyancer/lawyer will generally be responsible for:
- Advising you of your obligations under the contract you signed
- Liaising with the seller’s legal advisers
- Arranging all the paperwork to transfer the title from the seller to you
- Notifying all the relevant government departments that you are the new property owner
- Liaising with your bank or loan provider to ensure funds are all ready and available to pay the seller on the date of settlement
- Organising settlement with the seller and your bank, and attending on your behalf
That was probably more than 60 seconds, but certainly covers the immediate highlights I would tell my friends if they didn’t know where to start. You don’t have to know the intricacies of the process from start to end. However it is very important to know enough that you can engage with advisers who can ensure you come out of the process with the only worry you have being how to furnish your new pretty home. And if you have a partner who is happy to take the charge and organise this all, great! You can sit back and know exactly what is being done to ensure you can pick up those shiny new keys.