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Ask an expert: 5 steps towards buying a house

1. Pre-approval

Also called Approval in Principle (AIP) or Conditional Approval. Essentially this means the lender has assessed your income, liabilities and credit history and is confident to lend you a sum of money. This is conditional to the valuation of property you find being equal to or more than the contract of sale price. This is also conditional to your financial situation not changing adversely since assessment. Once given pre-approval, you will have between three and six months to look for a property.

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2. Finding a house

Finding a house in this current market can be very frustrating. The key is building relationships with your local real estate agents so you remain in their view when homes do come up for sale.

While looking for a house, it would be prudent to know your maximum limit. You will need a buffer to accommodate a seller's market so set your pre-approval amount to your maximum (You can always reduce the borrowing amount if purchase price is less, but it's a lengthier process to ask lender for more money if you're short). When you find the property you want, it can come down to that 20-30k buffer that will get you over the line. For a 30 year investment you will need to weigh up the pros and cons of more expensive properties.

3. Holding deposit and cooling off period

man-signing-home-documents When you find your house you will need to make your intentions known by placing a small holding deposit with the vendor (seller). You will then be given a 5, 7 or 10 day cooling off period. Ask your solicitor for 10 days so you have necessary time to complete the many tasks before you.

You will have to place a 10% deposit when cooling off expires. If you need to rely on the bank's lending amount for some of the deposit on your home, your mortgage broker has this period of time to organise a deposit guarantee to be given in place of a cash deposit (see Deposit Power website for full details). Your solicitor or conveyancer also has this period of time to do necessary checks on the house, pest, structure etc.

Then the lender brings your pre-approval to a formal approval. A Contract of Sale is presented to you with the purchase price when you place the holding deposit and you sign the contract of sale (exchange of contracts). This is given to your broker, who sends to your lender and organises a valuation on your property. A valuation is returned and if it is in line with the contract price, the formal approval is given, which in turn gives you confidence to place the 10% deposit on your new home.

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4. Loan contracts are sent to you for signing

There are generally 42 days from placing the 10% deposit to the settlement of your loan. Within the first week of receiving formal approval, your loan documents will be sent to you for signing. Once they are signed and returned they are certified by the lender and documents prepared for settlement and the dispersing of funds.

5. Settlement

This involves the transfer of deeds into your name, the dispersing of funds etc. Generally it means you can move in!

Remember though, this is a generalised process for purchasing an established home and not advice. House and land purchases vary slightly regarding the timing and loan structure. Refinances have a different process. Every home loan is different.

About the author: Mark is a Lendi Home Loan Specialist. He specialises in refinance and new purchase loans. He really enjoys helping young couples get into the market, taking them through the loan process step by step, particularly through the sometimes difficult stages of construction.

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Tags: home loan, contract of sale, pre approval, new purchase

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Important legal stuff

COMPARISON RATE WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years.
Lendi is the trading name of Lendi Pty Ltd, a related body corporate of your licensed credit assistance provider, Auscred Services Pty Ltd (ACN 164 638 171, Australian Credit Licence Number 442372). We will never sell your email address to any third party or send you nasty spam, promise.
EXAMPLE: This example is current as at 20th October 2016. A Click Loans Online Principal and Interest Loan of $150,000 over 25 years has monthly repayments of $767. This is calculated based on the interest rate of 3.69%, comparison rate of 3.69%, upfront fees of $0 and annual fees of $0.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria.
Lendi is a privately owned and operated Aussie business. Our mission is to provide Aussies with the right experience when choosing a home loan from our panel of major and non-bank lenders including Click Loans which is a wholly owned subsidiary of Auscred Pty Ltd and a related body corporate of Auscred Services, your credit assistance provider. Although Lendi compares over 1600 products from over 30 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. While Lendi is 40% owned by founders and employees, we have also been supported by some great minority shareholders including Bailador, Macquarie Bank Ltd and a number of Australian sophisticated investors. We have an independent and founder led board.
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