Have you just signed a contract of sale on a home? What happens now? In this article, we will show you exactly how to get to settlement after you’ve signed a contract of sale on a home.
This is the same process that’s helped thousands of homeowners settle their properties.
This is a non-technical step-by-step guide. If you’re not super technical, you’ll love the simple steps in this guide.
Before we get into it, remember that the team here at Hunter Galloway – Mortgage Broker Brisbane are here to help if you need it.
Let’s get started.
Step #1: Pay Your House Deposit
There is always a deposit payable to the real estate agent when you have signed a contract of sale.
But did you know the deposit is paid in two parts?
The first part is a holding deposit (also called the initial deposit), which is usually a small amount between $500 and $2,000 (or up to 0.25%) to secure the property.
The holding deposit shows that you are serious about buying the property and needs to be paid within 3 business days of signing the contract of sale. If you do not pay the holding deposit, your signed contract can be considered void!
The second part is the balance deposit, which is more substantial. It is either a set percentage of the purchase price (like 5% or 10%) or a fixed amount, like $25,000.
The balance deposit is paid once your finance and other conditions have been met.
This deposit is paid directly to the real estate agent’s trust account by Electronic Funds Transfer, Cheque or Bank Transfer.
The deposit holder’s trust account details are on page 3 of the standard signed contract of sale in Queensland. The real estate agent is usually the deposit holder.
Once you pay your holding and actual deposit, you need to request a receipt from the real estate agent to confirm this has been paid.
The real estate agent will hold the deposit in their trust account until settlement, and the amount you pay in deposit will reduce how much you need to pay at settlement.
For example, if your purchase price is $500,000 minus the bank loan of $450,000 and you had paid a $10,000 initial deposit, you only need to pay the deposit balance or $40,000 at settlement.
Step #2: Get Your Loan Formally Approved
Now it’s time to get in touch with your Mortgage Broker.
The steps in getting your loan formally approved include:
- Get the Contract of Sale to your Mortgage Broker. Let your Mortgage Broker know you have signed the contract of sale, how many days you have allowed for finance and when settlement is supposed to happen!
- Some documents might be needed. Depending on whether or not you have a pre-approval and when it was approved, your Mortgage Broker may need updated documents from you, including payslips or bank statements.
- A Proper Bank Valuation is Ordered. Your mortgage broker will organise a bank valuation now that you’ve found a property you have your heart set on. A property valuer will inspect the property and let you know what the property is worth. Sometimes, this may be different to your purchase price.
- Receive your Formal Approval (also referred to as unconditional approval). ‘Formal approval’, also known as ‘unconditional approval’, is when your home loan application has been fully approved without you needing to meet any other conditions, and the bank is happy to give you the money towards your new home!
- Let your solicitor (or conveyancer) know it’s all good in the hood. Now your finance is approved (and assuming your building & pest report is fine), it’s time to let your solicitor know that you are happy to go unconditional on your contract and proceed with the purchase. They will formally notify the Real Estate agent and property sellers.
What happens if my home loan gets declined?
Don’t worry; this happens sometimes. Did you know that in 2018, over 40% of home loan applications were rejected by banks?
You have 2 options when your home loan has been declined by a bank:
- Option 1: Speak with your Mortgage Broker about applying for another loan with another bank.
- Option 2: Provided you signed the contract of sale subject to finance, let your solicitor know you were unsuccessful with finance. They can terminate the contract and get your deposit refunded.
Read More: First Home Buyer Loans
Step #3: Arrange Building & Pest Inspection
Building and pest reports are what we consider the most common and almost mandatory cost when buying a house.
These reports look at the building’s structural soundness and pests to ensure you aren’t flatting with termites or white ants.
A typical building inspection for a 4-bedroom home can cost $400-500, and a pest inspection $200-300. The good news is that you can save a few hundred dollars by getting a combined building and pest report for around $500-600.
With white ants, termites, or even dampness, you can’t physically see them from the outside.
Building & Pest Inspectors (who in Queensland are generally licenced builders) will inspect under the house, in the roof and use their own technical equipment to check for damp and other issues.
“I can say that Building & Pest reports have saved me over 5 times from buying complete dumps of properties. I’m not kidding when I say these reports have saved me over 5 times.
In one year, I literally spent over $2,000 on reports for different properties before finding the right place, but I’m glad I did!
One of the properties had concrete cancer. Another had issues with flooding and water leaking through the walls, which were going to cost the new owner $9,000 to fix. Another had termites in a tree in the backyard and evidence of old damage to the roof.
This was all stuff I wouldn’t have found out without using a building & pest inspector.”
What happens if I get a bad building & pest report?
Not to worry, just let your solicitor know there is an issue with the building & pest report, and they can terminate your contract.
If you had signed the contract subject to a building & pest report, you will get a full refund of your deposit.
Step #4: Sign Your Documents
At this point, your Mortgage Broker will arrange a time to sign your loan documents.
You will need to sign your Home Loan Contract, Mortgage (title) Document, Direct Debit Agreement and any other bank forms.
You should also contact your solicitor to confirm some important details, such as the date of settlement, whether any other fees are payable, and whether you need to arrange any cheques for settlement…
Step #5: Get The Power Connected & Mail Redirected
Moving costs might seem like an obvious one, but have you thought about getting the power connected and mail redirected?
Houses don’t have power connected unless someone is paying the bills…
So remember to plan ahead and shop around to see what deals you can get on your power.
With the increase in competition in Brisbane’s energy market, we’ve found that you can get any connection costs waived, provided you sign up for a 12-month contract. Phone around and see what you can do, but companies like Origin make this pretty easy when moving into a new home.
Redirecting your mail is pretty easy, too. Australia Post has details, but a word of warning—it takes them 3 days to set up the redirection. So try to do this before settlement!
Read More: Moving & Connection Costs when buying a home
What Can Cause Settlement To Be Delayed?
Unfortunately, plenty of things can go wrong from the time you sign the loan contracts until settlement, which can cause massive delays. Some of these delays can be caused by:
Bank Problems: The bank might be delayed when they get your contracts back. They might be processing issues you might have missed, e.g., a signature, which can cause settlement to be pushed out by days and sometimes even weeks.
Final inspection issues: Before the day of settlement, you’ll generally do a pre-settlement inspection. You will check out the property to make sure there are no holes in the wall and that they’ve fixed up any things they promised they were going to fix up. If the problems haven’t been rectified, this can cause massive delays in your settlement.
Simultaneous settlement: The third problem we see all the time is if the sellers are trying to buy another property or refinance a loan on the same day. It’s called a simultaneous settlement. This means that you need to coordinate multiple parties to try and settle on that one day when you’re supposed to hand over the keys. This complexity can invariably cause massive delays with your settlement, which can really risk your deposit.
Late Documentation: The fourth thing that can cause some delays is late documentation. Simply missing a signature or if your conveyance your solicitor forgets a form or a bank document can cause issues. The banks won’t settle your home and, therefore, can delay settlement. It’s not necessarily your fault, but it can happen all the time, and we see it so often.
What Happens If Settlement Is Delayed?
So, what happens if your settlement is delayed, and what are some of your rights and things that you can do when it happens? Well, in this section, we will break it down by state because every state is a little bit different.
Note: This isn’t legal advice. You should consider your personal situation and speak to a lawyer.
Queensland: Unfortunately, it’s one of the harshest states in Australia. In Queensland, one of two things happens. Number one, the seller will agree to extend your settlement, and it’ll be fine – you can push it back a couple of days if everyone’s pretty happy. Number two, which is the worst case, is if you’ve determined a settlement date on the contract, the seller can choose to terminate the contract altogether. That means that they can take your deposit. So, if you put down 5% or 10% of the property’s purchase price on the contract, they can actually take that if your settlement is delayed.
Western Australia: They’re a little bit more lenient than Queensland. They generally have a rule that gives you a three-day leniency on the settlement date. So, if you can’t make it on Monday, they might push it back three business days, but then they will start charging you penalty interest for every day that you’re late. Again, the conditions will depend on your contract, so check it out with your lawyer.
New South Wales: They will charge you penalty interest for every day that you’re late. Then, they can issue what’s called a notice to complete. This document says that you must settle on a certain date, or the contract will be terminated, and you’ll forfeit your deposit. The number of days in the notice to complete is usually about 14 days, so at least you’ve got a bit of breathing space there, but obviously, it is not a situation you want to get to, and you want to resolve quickly.
Victoria: In Victoria, it’s similar to New South Wales. They will charge you penalty interest, which can be up to 10% every day that you’re late. So you can end up racking up thousands of dollars in extra penalty fees that you wouldn’t otherwise have to pay if your settlement wasn’t delayed.
How do you reduce the risk of having a settlement delayed?
- Be organised – if the bank sends you documents, try not to sit on them for too long; you need to sign and return them as soon as you can because once you send the documents back to the bank, they can take a few days and sometimes, if it’s busy, a few weeks to verify the documents. They’ll double-check the signatures and make sure everything is in order to settle your home loan. If there’s something missing or wrong, they’ll have to send the document back, which can delay things weeks at a time. So, get a mortgage broker to double-check the documents before you send them back.
- Choose the right team—you want to work with solicitors and conveyancers who already know the process, understand the ins and outs and are aware of the timeframes to ensure that everything goes smoothly so that you’re not having to run around at the last minute getting bank accounts closed and signing different forms.
- Keep up communication – with property, it’s all pretty slow and a bit manual, but you must always ensure that communication is being kept up. Most importantly, you want to put your mortgage broker and your solicitor or conveyancer in touch with each other so they can communicate and coordinate your settlement to make sure it goes through super smoothly and there are no delays from them waiting on each other or waiting on you for certain documents.
- Pay attention to detail—check the documents before signing them. Make sure that the deposit amount hasn’t changed. Make sure that your name is spelled correctly. All these little things can cause massive delays with settlements.
Bonus: Is A 21-day Finance Clause Right?
The short answer is no.
In a competitive property market like Brisbane, 21 days is WAYYY TOO LONG, and you could miss out on your property.
Finance clauses represent a risk for the property seller. If they accept an offer for a purchase with a 21-day finance clause, then they run the risk of you walking away from the contract on day 20. That means they will have to go back to the market or see if any other bidders are still interested in the property. The shorter the finance clause, the “safer” the offer is in the eyes of the seller since they won’t lose any momentum with the property sale if anything does go wrong with your application.
When the property market is really hot (as we saw during the last couple of years), many buyers will submit an offer without any finance clause at all. So, if you want your offer to remain competitive (without risking financial losses), keep your finance clause as short as possible.
If you do not have a pre-approval, we suggest a 14-day finance clause. Once you have a pre-approved home loan, you can even reduce it to a 7-day finance period. If you choose Hunter Galloway as your mortgage broker, we will let you know the best finance clause length for your situation.
Read More: How to Make an Offer on a House
Bonus: How To Get A Finance Extension On A House Contract?
Your finance clause is due at 5 pm on the date noted on your contract. In other words:
If you have finance due Wednesday, you have until 5 pm Wednesday to go unconditional on the contract and pay the balance deposit, or decide not to proceed and get your deposit refunded.
But what happens if your home loan isn’t approved by the time your finance clause is due, and you need to ask for an extension? According to First National Real Estate Agents, “approximately 70% of the contracts we receive every year with a 14-day finance clause require an extension, “so don’t worry—it is very common to ask for an extension on a house contract.
To get a finance extension on a house contract, you need to:
- Contact your solicitor/conveyancer and ask them to formally request a finance extension from the sellers.
- You can also give a heads-up to the Real Estate agent that you will need a finance extension.
- Your solicitor will send a request in writing to the sellers requesting the extension.
- The seller’s solicitor/conveyancer will send confirmation back in writing confirming your finance extension.
The seller has options when it comes to extending the finance clause: they can either grant the extension, do nothing or terminate the contract.
In most cases, we find the sellers will extend the finance clause.
This is because they have spent the last 7 to 14 days waiting for your finance to be approved, and a simple extension of 3-4 days is a much better prospect than starting the clock again to find a new buyer.
Bonus: What Does The Contract Of Sale Contain?
A contract of sale contains information about all the parties to the contract, including their addresses and names. It includes the following:
- Certificate of the title information
- Offer date
- Warnings, such as the necessity for a smoke alarm
- Settlement date of an intended property
- The cooling-off period
- Information about furnishing and fixture
- Improvements to the property
- Property address
- Loan details, such as the terms and conditions of the payment and initial deposit
- The price of the property
- Name of a seller
- Purchasing party information and
- Information about the selling agent.
Normally, the special conditions are included in the contract of sale that can override the general conditions of the contract. Therefore, don’t sign the contract until you are fully aware of all the terms and conditions. The seller is required to attach the following with the contract of sale:
- Notification about the defects
- Warranties
- Sale conditions
- Disclosure documents
- Cooling off notice
- Warranty insurance certification
- Easement and restriction documentation
- Property certificates
- Zoning certificates and
- Plans of sewer lines
If a seller fails to include these things, the buyer has the right to cancel the contract within a certain period of time.
Bonus: Details Of Different Contracts Across Australia
Victoria
The Instruments Act 1958 states that a verbal agreement is not binding unless you honour a contract of sale in full.
Before signing a contract of sale, the seller is bound to provide the potential purchaser with the seller’s statement. Both parties sign each contract’s copy and exchange it through a real estate agent. The cooling-off period in Victoria is 3 days.
New South Wales
In New South Wales and Sydney, you cannot sell a residential property without signing a contract of sale. The seller of a strata scheme or a single freehold must also provide a valid non-compliance certificate, an occupation certificate, and a valid compliance certificate.
Moreover, the vendor and purchaser are under no obligation to honour the contract until they exchange signed copies. These copies can be exchanged in a face-to-face meeting or via mail. The cooling-off period in New South Wales is 5 days.
Queensland
In Queensland, the cooling-off period is 5 days. For the contract to be valid, it should include the following information: If the purchaser terminates the contract during a statutory cooling-off phase, they will be bound to pay a penalty of 0.25% of the purchase price. So, if you terminate the contract for a $500,000 property, you will have to pay $1,250.
Therefore, we advise that you do a property valuation independently and seek legal advice regarding cooling-off rights and the contract before signing a contract.
In Queensland, the buyer signs the contract first, and the seller only signs it if he accepts the offer. It becomes binding only after the buyer receives an acceptance notification. It is important to note that in Queensland, only lawyers can act as conveyancers.
South Australia
In South Australia, a seller is bound to provide the buyer with a Form 1 Disclosure statement before signing the contract. After both parties sign the contract, they are bound by its terms and conditions. The cooling-off period in South Australia is 2 days.
Bonus: What To Do When The Seller Backs Out Of The Contract
In rare cases, a seller can choose to back out of a contract. What do you do then? Here are some of the steps a buyer can take when a seller backs out of a contract:
- Talk to your conveyancer or lawyer, as this is a legal matter.
- The seller has to give back any initial deposit you had paid to them.
- The seller can be given an order to pay damages like money spent on building and pest reports, legal fees and any other expenses you incurred in the process.
- Sometimes, the seller can be forced to go through with the sale. In this case, you must prove that the seller just paying damages is not enough to make up for your loss if you don’t get the property. For example, if the property is so unique, you will never find another like it.
- If the seller refuses to cooperate, there is always the option of taking them to court. Now, bear in mind that this is costly and extremely time-consuming, and you may not get the results you want. However, on the flip side, a court case is also expensive and time-consuming for the seller. So, this motivates level-headed sellers to settle the dispute out of court.
Talk with a Mortgage Broker Who Understands The Settlement Process.
The biggest secret to getting your home settled easily is working with an experienced Mortgage Broker. Homeowners have a much higher chance of getting their loan approved quickly (and easily) if it is submitted to the right bank.
At Hunter Galloway, we are experts and would love to help you buy a home. We can help First Home Buyers and Existing Homeowners with getting settled quickly and easily.
Unlike other mortgage brokers who are just one-person operations, we have an entire team of experts dedicated to making your home loan journey as simple as possible. If you want to get started, please give us a call on 1300 088 065 or book a free assessment online to see how we can help.
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