In my role I think a lot about how I can add value to the client experience. I’ve learnt that there is plenty of value to be added in the property purchasing journey, and that the majority of questions secondary to those about finance are about the process i.e where to start? And what next?
In this two-part series, I will break down the 5 key stages of buying a property. Whether you’re buying your first home, an investment property, or just re-familiarising yourself with the process, you can read on below for a step-by-step summary of what to expect.
1. The application
I have started with the bank loan application, but for many people the home buying process by no means starts here. It can start 3-6 months prior to this, when you first get the idea to buy a home and begin researching and exploring your options. But for the sake of this blog, we will start with the application.
In previous blogs we have touched on the importance of using a broker. If you are considering a purchase, then your first point of call should be to speak to your broker to understand how feasible the desired purchase is before you start investing further time into the process. Once you’re given an indication that you’re likely able to proceed, then your broker will work with you to submit an application to the appropriate bank / lender.
Working with a broker during the application phase will help you manage your expectations as to what is possible. At times, you may be pleasantly surprised with the outcome, and your broker can provide meaningful advice as to what you can do even if you are not quite yet ready to borrow.
Once you have worked with your broker to get to a point of application, there are two types of bank approvals you can apply for.
Pre-approval
The pre-approval is a document provided by the bank to allow you to go ‘home shopping’ with confidence. This is where you can indicate that you don’t quite yet have a property in mind, but you are in the market and want to know your borrowing capacity. The bank will write a generic approval and in most instances, this will be valid for 90 days.
Live approval
If you have already been searching for properties and have found one that you really want to make an offer on, you could go to your broker with a specific property in mind, which means you need to get a bank approval ASAP. At this point, your broker will be able to give you advice about what terms to put on your Sale and Purchase agreement to allow you time to go to the bank to secure finance. Your offer will be ‘conditional’ to finance- we will touch on what that means in the due diligence section below. This approval will be specific to your chosen property.
2. The Search
This part of the process may have started a year ago when you were scrolling through TradeMe or homes.co.nz and fantasising about your first home or future investment. Often, mortgage applicants complete the search prior to speaking to a broker and the application phase is kicked off by presenting a property to a broker and suggesting that they would like to purchase a particular property. As touched on above, at times, a property will already be ‘under contract’ and the client will have 10 days (or otherwise negotiated) to complete due diligence and secure bank finance. More on this to come in the next phase.
At this point in your home buying journey, you may be attending open homes and speaking to real estate agents. You will be navigating through the different types of vendor sales options such as auctions, tenders and negotiations and you’ll be cross referencing the information received with your advisers, including your mortgage broker and property solicitor.
3. Due Diligence
Probably the most important step in your property purchasing journey. This is the stage where you have the opportunity to secure a property temporarily while you ensure the purchase is going to be a sound investment.
At this point, you should be working with your solicitor and mortgage broker to negotiate the terms of the contract. Your solicitor will advise on what due diligence clause to add to the contract, and your broker will be able to suggest how long it will take to secure an offer of finance on the property.
In most instances, the real estate agent selling the property will prepare the sale and purchase agreement and write these terms, once they are agreed on by both the vendor and purchaser.
These clauses provide a ‘get out of jail free card’ if there is something not quite right with the property, or if for some reason you are unable to secure finance. Standard due diligence will include the opportunity to get a building report completed, and access the LIM report which will detail items such as un-consented works or caveats on the property. You may also wish to put a specific request in the contract, but note that it will have to be acceptable to the vendor.
The length of time for due diligence and finance to be secured is negotiable, but 10 days is relatively standard and you want to ensure your offer is attractive to the vendor.
In the next blog, we will start with ‘going unconditional’ which is the point when all due diligence has been completed and finance has been secured and there is a full commitment to the purchase. Stay tuned.
Want to learn more about the home buying process? Check out our First Home Buyer’s Guide or Property Investment Guide. Or if you’re ready to kickstart your home buying journey, get in touch with us any time- we’d be happy to help!
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