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.
5 Simple Steps to Settlement
- 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
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
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.