In comparison with purchasing most goods and services, the house buying process is complex and time consuming. This is due to the sheer size of the transaction and the lasting impact that the purchase has on the buyer.
When we purchase something in a shop, there is usually just a buyer and seller involved. Sometimes a finance or credit card company becomes a third party.
In contrast, in the house buying transaction there are nearly always several parties involved and all have an important function to perform
In this chapter, we will look at the stages of the house buying process and examine the roles and responsibilities of the key parties involved.
Stages in the house buying process
There is a strong tradition of home ownership in the Australia. Over 70% of the housing stock is owner occupied. Therefore it follows that most people either go through the process of buying a house or actively consider it as an option during their lifetimes.
The ideal starting point for any would-be purchaser is to decide on a budget. This will entail looking at personal financial resources, such as income, savings and investments; then finding out how much a financial institution will lend by way of mortgage. In reality, many look for the house first, only to be disappointed to find they cannot afford what they are looking for.
Virtually all lenders are prepared to give initial advice at this formative stage of the process. Some lenders start off the application process here by offering mortgage approval certificates, which state that the customer can borrow up to a specified amount, though these are always produced subject to certain conditions and valid only for a set period of time.
In addition to mortgage lenders, there are many professionals – such as estate agents, brokers, mortgage advisers and financial advisers – who can give guidance. Some have mortgage finance departments and offer arrangement services.
Once the purchaser has some idea of price range, the house-hunting process can begin. Details of properties can be obtained from selling agents, newspapers and private sources.
The purchaser will consider some or all of the following:
- proximity to work;
- proximity to schools and amenities;
- availability of road links and/or public transport;
- personal considerations and preferences, such as whether the property sought will be close to relatives and friends, located in an urban or rural area and so on.
It is a useful exercise to visit potential alternative areas of residence to get a ‘feel’ for them. This also enables the purchaser to get an idea of properties on the market and find out names of the selling agents from the sale boards displayed in the area.
Appointments to view can be made through selling agents or, in the case of private sales, the vendors themselves. This enables the buyer to shortlist potential properties and then decide whether or not to make an offer.
If a mortgage adviser has not been consulted by this stage, it is necessary to do so now in order to:
- establish how much can be borrowed;
- learn how much will be required by way of balance of purchase price, fees and so on; and
- apply for a mortgage.
The lender focuses on two principal matters:
- the borrower’s ability to service the proposed borrowings, based on income, outgoings and track record; and
- the suitability of the property as security for a mortgage advance.
In respect of the latter, all lenders will insist that a valuation be carried out. Any offer of advance and the conditions contained in it will be based on the valuer’s recommendations.
At this stage, two processes take place in parallel: the negotiations with the vendor and the mortgage application process. Once these are under way, the purchaser should appoint a solicitor or conveyancer. Most lenders can refer the customer to professional contacts whom they know to be reputable.