Buying any home is an incredible milestone in life, especially when it’s your first, when emotions are charged and there is a lot to take in.
Unfortunately the emotional overwhelm can lead new homebuyers to believe that jumping right in is the best way to go. Your first home purchase is a risky transaction and one that needs to be taken seriously.
While we have the world of the web at our fingertips it’s startling to realise that many people hoping to buy their first home actually fail basic property buying tests.
A recent survey conducted by ME Bank showed results that those who said they were potentially buying property had significant gaps in their knowledge of what was actually at stake including not being able to make solid financial decisions, not understanding that winning at auction is a solid commitment to buy and having no knowledge of what a conveyancer was.
When asked about lenders’ mortgage insurance 85% inaccurately responded that this covered the borrower instead of the lender.
Two thirds responded that conveyancing, a mandate legal expense for title transfer, was actually to do with hiring someone to check boundaries and confirm property measurements.
Other sticking points were buying off the plan, especially for investment properties, and auction wins, with 80% of those surveyed believing there was a cooling off period and almost as many not understanding that the deposit needed to be paid on the same day.
It’s often not until a first homebuyer reads the contract that reality starts to hit, although in some cases this is too little too late, especially if there was a lack of understanding around the loan applications terms and conditions to begin with.
Unfortunately this can catch new homebuyers unaware and cause considerable financial loss. Those with conditional preapproved loans may find they win at auction, pay the 10% deposit, and go to the bank or lending agent only to discover the agent does not agree on the home value. The loan is not approved and the deposit forfeit.
In many cases the sale jargon itself was familiar to potential homebuyers, however, there was either no meaning, or incorrect meanings attached to the common terms.
Many first homebuyers rely on the advice of their parents which might be out dated or have been under different circumstances to the current sale.
Those surveyed that had already purchased property also showed gaps in their understanding of ongoing factors, with two thirds not sure what factors contributed to their loan interest.
The only way to go forward if you are looking to buy any type of property is to undertake extensive independent research. When you are making purchases of this magnitude it pays, financially and emotionally, to uncover every stone you can find and get professional assistance when you need it. While internet search engines are a good start and a great way to connect you with property professionals it’s important that people understand that online advice can come from anywhere. It needs to be backed up with solid research that is specific to your property location, type and current market.
Here is a glossary of basic property terms you need to know if you are looking to buy, however don’t stop there, reach out and contact a professional who will be on your team with practical advice and knowledge to stop the gaps and avoid pitfalls that could prove costly.
Lenders Mortgage Insurance
This is a fee paid by the borrower to the financial lender. It is usually required when the deposit on the loan is less than 20% of the property price. The insurance will protect the finance lender if there are any defaults on the loan.
A hired conveyancer or property solicitor is required to transfer the property title from person to person. They will use online systems to organise payment to the homeowner and lodgement to the required office for the settlement to go through. Conveyancers can also provide advice on sale contracts and investigate the legal aspects of the original titles to rule out instances of fraud.
3 business days after a purchase (in the state of Victoria) in which the buyer can cancel the transaction. This must be delivered in writing and does not apply to properties purchased at auction. Note that the vendor holds the right to charge $100 or 0.2% of the purchase price (whichever is more) if you chose to cancel the transaction via the cooling off period.
This takes place when a savings account or everyday account is linked to a home loan. In this case borrowers will be not be charged interest on the saving amount as the balance can be offset against the home loan balance.
The gap between what a house is worth on the current market and how much is left on the home loan. It might be possible to borrow against the gap (home equity loan), taking the home loan out to the full property value in order to gain funds to use to carry out a renovation or buy an investment property.