Today I’m going to show you exactly how to get to settlement after you’ve signed a contract of sale on a home.
In fact, this is the same process that’s helped over 113 homeowners settle their properties in the last year.
And I should point something out:
This is a non-technical step by step guide.
So if you’re not super technical (like me), you’ll love the simple steps in this guide.
Let’s get started.
Settlement: 5 Simple Steps
- Step #1: Pay your house deposit
- Step #2: Get your loan formally approved
- Step #3: Arrange building & pest inspection
- Step #4: Sign your documents
- Step #5: Get the power connected & mail redirected
- Talk with a Mortgage Broker that understands the settlement process
- Bonus: Is a 21 day finance clause right?
- Bonus: How to get a finance extension on house contract?
- Bonus: What does a Contract of Sale Contain?
- Bonus: Details of different contracts across Australia
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 is a holding deposit (also called the initial deposit) and is usually a small amount of $500 to $2,000 (or up to 0.25%) to secure the property.
The holding deposit shows you are serious about wanting to buy the property and needs to be paid within 3 business days of signing the contract of sale…
Or your signed contract of sale can be considered VOID.
The balance deposit is more substantial, either a set per cent of the purchase price (like 5% or 10%) or a set amount like $25,000.
And the balance deposit is paid once your finance and other conditions have been met.
The deposit is paid directly to the real estate agents trust account either by Electronic Funds Transfer, Cheque or Bank Transfer.
The deposit holder (generally the real estate agents) trust account details are on page 3 of the standard signed contract of sale in Queensland.
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.
In other words, if your purchase price is $500,000 minus bank loan of $450,000 and you had paid $10,000 initial deposit, you only need to pay the 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 if 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 – Now you’ve found a property that you have your heart set on, your mortgage broker will organise a bank valuation. A property valuer will inspect the property and let you know what the property is worth.
- ✅ 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 any more conditions needing to be met and lets you know the bank is happy to give you the money towards your new home!
- ✅ Let your solicitor (or conveyancer) know its all good in the hood – Now your finance is approved (and assuming your building & pest report is fine) its 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 in 2018 over 40% of home loan applications were rejected by the 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 & Pest reports are what I would consider the most common, and almost mandatory cost when buying a house.
These reports look at the building (structural soundness) and pest – to check you aren’t flatting with termites or white ants.
A typical building inspection for a 4 bedroom home can cost $400-500 and pest inspection $200-300 – the good news is you can save a few hundred dollars by getting a combined building and pest report for around $500-600.
I can say that Building & Pest reports have saved me over 5 times from buying complete dumps of properties.
With white ants, termites or even damp you can’t physically see it 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’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 in the roof.
This was all stuff they 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.
Provided 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
You will need to sign your Home Loan Contract, Mortgage (title) Document, Direct Debit Agreement and any other bank forms.
You should also get in touch with your Solicitor to confirm some important details like the date of settlement, if there are any other fees payable and if 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…
And I’ve moved into houses without power, and had to wait 2 days to get it connected… 🌃
So remember to plan ahead, and shop around to see what deals you can get on your power.
With the increase in competition in the energy market in Brisbane, I have found 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
Bonus: Is a 21 day finance clause right?
If you are buying a home in Queensland, the finance clause includes the total time you have as as buyer to get your home loan approved after signing the house contract.
When you buy a home in Queensland, you can sign a contract subject to certain conditions subject to:
- ✅ You being approved for finance
- ✅ A satisfactory building and pest inspection
- ✅ If you can sell an existing property
It’s important to double check these conditions are in your contract before you sign, otherwise you can be bound to the contract. As the buyer this is your responsibility.
But the one question we get asked all the time:
Is a 21 day finance clause good?
The answer? No.
In a competitive property market like Brisbane 21 days is WAYYY TOO LONG and you could miss out on your property.
Read More: How to Make an Offer on a House
Bonus: How to get a finance extension on house contract?
Your finance clause is due at 5pm on the date noted on your contract.
In other words:
If you have finance due Wednesday – you have until 5pm 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 you will be needing a finance extension.
- ☑️ Your solicitor will send a request in writing to the sellers requesting the extension.
- ☑️ The sellers solicitor/conveyancer will send confirmation back in writing confirming your finance extension.
From the sellers perspective they have 3 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 at 7 to 14 days with a new buyer.
Bonus: What does the Contract of Sale Contain?
It contains information about all the parties to the contract, including their addresses and names. Following is a list of information you will normally find in a contract of sale:
- ✅ 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 a 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, it gives a buyer the right to cancel ⛔️ the contract within a certain period of time.
Bonus: Details of different contracts across Australian
- 🇦🇺 Victoria
The Instrument’s Act 1958 states that unless you honour a contract of sales in full, a verbal agreement is not binding.
Before signing a contract of sale, the seller is bound to provide the potential purchase 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. Many changes have occurred in these states. For example, a seller of strata scheme or a single freehold is also required to provide a valid non-compliance certificate, an occupation certificate, and a valid compliance certificate.
Moreover, the vendor and purchase 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 and the following information should be included in the contract for it to be valid: If the contract is terminated by the purchaser during a statutory cooling-off phase, they will be bound to pay a penalty of 0.25% of the purchase price. Therefore, it is advised that a purchaser should do a property valuation independently and seek legal advice regarding cooling-off rights and the contract before signing a contract.
In these states, the contract is signed by the buyer 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 the contract is signed by both parties, they are bound by its terms and conditions. The cooling off period in South Australia is 2 days.
Talk with a Mortgage Broker that 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.
Please call us on 1300 088 065 or complete our free online assessment form to get in touch with a Home Buying Expert.