Step by Step Guide to Successful Home Buying
This is a general timeline and checklist for new home buyers
The process of searching for a home and entering into a contract to purchase follows the general process outlined below. Some steps are blurred together they happen so fast! There are several parts of the process you may need to revisit or which overlap. You are your own best advocate and doer of due diligence throughout. It helps to form a team around you of whanau, friends and professionals who appreciate your vision and will offer the kind of support and agency to make your own decisions.
AUCTIONS: If you are going to bid at an auction, you MUST perform all your due diligence on both the property and your financing options BEFORE you enter the room (or zoom). Anything less than a full review of both the home and the legal and physical status of the property to be sure it meets your requirements would be very risky. Contracts, once signed, are legally binding and you could easily lose your deposit if you could not get suitable financing or if the property had insurmountable and unseen issues discovered after the auction. In this fast-paced and competitive market, it is highly unlikely a Vendor (seller) will accept any contingencies which delay their sale.
BY OFFER, TENDER or OFF PLAN: If you are buying by tender, offer, or off-plan the contracts and details are different but the basic flow is similar. You will need to find a good lawyer early on to advise you on the legal issues and how you plan to take the title and if any contracts will need to be drawn up prior. It’s a good idea to hire a mortgage adviser (broker) early as well so you have their perspective from your preapproval to your final settlement. Consult an accountant to assess your strategy if you intend to build an investment portfolio or have complex financial or ownership structures to consider. You must be informed IN WRITING if there are other competitive offers and find yourself in a bidding war. This can be terrifying stuff so it really pays to be prepared and keep your cool.
GET ADVICE EARLY AND OFTEN It is very important that you engage your mortgage adviser, accountant and lawyer upfront in many of these steps. We are here for you. We do not advise you on what to buy. We advise you on the options open to you in your specific situation. We do not represent any single bank or lender so our advice is impartial. Please appreciate that any single bank may offer to lend you money which is a specific service. They cannot offer impartial advice. As buyers, you must be aware of your responsibilities of homeownership and this checklist is a good start along your path.
Always feel free to ask questions of your mortgage adviser, lawyer and other consultants. The list below is a general guide and not to be construed as advice. Specific advice is always personalized to your circumstances after consultation with a professional financial or legal adviser you have agreed to represent you. Client agreements are presented upfront as of 15 March 2021, so you have time to consider all aspects of working with your advisers.
1. VISION PHASE - PLANNING
- Establish your priorities:
- How will you take title: sole, tenancy in common, partnership, corporation, trust?
- What kind of home and attributes for your family are needed?
- Will you have flatmates, need extra living space?
- Is your family growing or likely to need less space?
- Is your income going up, stable or likely to reduce?
- How long will you own this property?
- Draw up a ‘wants’ list and prioritize your top 'must-haves'
- Neighbourhood, schools, proximity to work and family
- Purpose: as your home or investment - or will that change?
- Talk to your accountant about tax implications if you are buying as an investment
- Property type, size, number of bedrooms, baths, parking, storage, special needs
- Outdoor garden/places to play and enjoy your hobbies
- Consider extra time/energy if you will improve a home you buy
- Do you have the skills and the time to do this work?
- Can you afford to pay a builder to do this work?
- Set aside a budget for projects
- Develop a home budget – now and future monthly operating costs which include:
- Cash resources and any family funds you are counting on as gift funds
- Mortgage (compared to rent now) will likely be your main expense each month
- How much can you comfortably afford per month/week?
- This is up to you, not how much your bank will lend you. Be realistic!
- Discuss budget and current/projected means with your broker/partner/family
- Include in your budget:
- Rates, Insurance, potential Lease or Body Corp fees
- Home appliances, lawnmowers and maintenance costs
- Contingency fund for moving and redecorating or buying appliances, etc.
- If renovating, get quotes and actual costs from master builders
- Establish a timeline:
- When you ideally want to move into your new home
- Plan to give notice to landlords
- Plan packing and moving schedule
2. ORGANIZE FINANCE – PREAPPROVAL PHASE
- Hire a mortgage adviser who understands your goals
- AML Anti-Money Laundering Act requirements: You will be asked to identify yourself in person and verify your nationality, tax status, residential address and source of funds by both your financial adviser and your solicitor, as well as the bank that will grant your mortgage loans. All financial beneficiaries will also be identified by your solicitor/lawyer.
- If you are a recent immigrant, OIO (Overseas Investment Office) approval may be required. You must apply for an exception prior to application to a bank. Apply yourself or hire a solicitor to process this for you - many exemptions apply for foreign nationals who are in New Zealand with a right to work. Get legal advice!
- Prepare your financial package of documents for your financial adviser
- Update as you go: all bank statements, debts, loans, household costs
- Inform your adviser if your circumstances change during the process
- Review your free credit profile - banks also see this (ask Susan how)
- Download your free report and save your logins
- Consider debt consolidation if you have multiple debts
- Consider accuracy and dispute any inaccuracies
- Figure out what your Loan to Value and what you need for your Deposit
- Learn if you qualify for Kiangaora/First Home grants or First Home Loans
- Factor what 85% and 90% loans will cost LEM (low equity margin) fees differ from bank to bank.
- Review your Savings and Cash Accounts – tally what funds you have now
- Establish how much you need for a 20% deposit with an 80% LVR loan
- Or 40% deposit for an investment property (max 60% LVR as of 3/21)
- KiwiSaver First Buyer Withdrawal – each borrower should apply to your provider for permission
- Your KiwiSaver letter is good for 60-90 days and is renewable
- Clarify if all parties qualify for KS withdrawal and how much $ you can each expect
- Request funds 2-4 weeks prior to settlement (funds must be liquidated first)
- Gift funds or family loans – discuss options with parents/whanau
- Explore guarantor role if appropriate
- If loans - discuss how they will be repaid
- Get legal advice on property share agreements or loans from family guarantors and co-borrowers
- Consider equity release loans or equity swaps
3. BEFORE YOU GO OUT HOUSE SHOPPING
- Hire a conveyancing solicitor or property specialist lawyer who understands your goals
- Consult them UPFRONT on each property you consider - reviewing all property issues
- Decide how you will 'take title', and if you need any property agreements with other parties (i.e., sole, partnership, joint tenancy, corporation or trust)
- Once your mortgage adviser presents the bank CONDITIONAL OFFER of FINANCE you can get serious
- This preapproval is good for 60-90 days
- Update all your documents with your financial adviser monthly during your search
- Payslips, credit card and bank statements must be up to date when you go for final approval
4. SEARCH PHASE
- Set up alerts on your phone and email for homes in your search category
- Go to open homes
- Research Trade me
- Look at Property.co.nz sites and others to compare homes sold and on the market
- Set up a map in your target zone, record your notes as you tour
- Do NOT sign up with one exclusive Sales Agent (limitations per agency)
- Research neighbourhoods: proximity to work, schools, friends and family
- Reconsider each home on its merits against your priority list (vision phase)
- Decide if you will conduct due diligence on a home prior to Auction
- Conduct Building reports, LIM report and Title reviews with your lawyer
- Your mortgage adviser presents the property to your bank for approval before bidding at Auction.
5. MAKING AN OFFER – LEGAL DUE DILIGENCE PHASE
- Make an initial offer to purchase via Solicitor or Sales Agent (if not an Auction)
- If you are going to bid at an Auction:
- Don't get disheartened if you don't win your first auction
- Attend an auction class or watch live auctions to get the feel for them
- Have a friend support you who has auction purchase experience
- Your solicitor/lawyer MUST review all contracts BEFORE YOU SIGN ANYTHING
- If negotiating an offer or tender: the Vendor (seller) may respond with a counteroffer – back and forth
- Your solicitor/lawyer negotiates the final price and terms, settlement date, terms, etc.
- Speak with your lawyer about other conditions/terms and due diligence time frames:
- Finance contingency
- Building inspection contingency
- Bank review contingency
- Speak with your lawyer about other conditions/terms and due diligence time frames:
- Conduct Building Inspection – for your purpose – at your expense which varies by size/age/location/type.
- Review the LIM Report and Property File – with your lawyer and mortgage adviser
- Your building inspector may conduct or recommend moisture readings if the construction type is suspect
- A toxicology report for Methamphetamine/P may be recommended (click link to info)
- Negotiations may be indicated if the builder’s report shows defects that are costly:
- Get builders quotes to rectify issues
- Consider if costs are worth the risk and effort
- Consult your accountant on financial/tax pros and cons
- Sign the Purchase and Sale agreement (once your lawyer has given the OK) with any contingencies you have clearly outlined and agreed to with the Vendor.
- Confirm acceptable financing via your mortgage adviser for the specific property
- Update your bank application adding the property details, rates, etc
- Satisfy other conditions of the lender – provide documents to your mortgage adviser
- Evidence of deposit/sources/gift letters/verifications/agreements
- Clarify any property specifics required by your bank assessor
- Rental appraisal presented by the estate or sales agent (if applicable)
- Present boarders or flatmates – signed agreements (templates available)
- Neighbourhood review – visit different times of day/week.
- Perform your own due diligence on other issues as they arise
6. LOAN APPROVAL PHASE (several phases below happen simultaneously with Legal Phase)
- Mortgage adviser submits details of the property, LIM, Title, Property docs to your bank for final Security Approval – meeting conditions of Conditional Offer letter to your preferred bank:
- Update your income, assets, liabilities and expenses or changes
- Disclose any anticipated changes in income or job changes
- Your mortgage adviser will confirm all details with your assessor
- Always speak with your mortgage adviser as things change during this phase
7. PROPERTY REVIEW
- Early on during the Legal/Finance phase, you perform your own inspections of the property to be sure it meets your full approval in all ways and to clear the legal contingencies.
- Your solicitor will review the Title, LIM, any Leases, Body Corporate records and other property documents
- Hire an independent Building Inspector. If problems arise, you may need specialists to prepare reports and quotes
- Do not rely on the Vendor’s inspection report. Always get your reports in writing
- Valuations are ordered as required by the bank at your expense - expect this to take 10 days. Your financial adviser will order the valuation on your behalf (you pay for this online) as soon as you have your conditional approval and are ready to proceed
- You may also need to get firm builder quotes for issues that come up in your inpections
8. FINAL APPROVAL
- Once your Bank has cleared the Valuation and any other outstanding conditions of the loan, your mortgage adviser presents your Bank UNCONDITIONAL OFFER OF FINANCING
- Your mortgage adviser informs your lawyer that your Finance Approval Condition has been met
- Lawyer declares the Contract is UNCONDITIONAL* after all contingencies are met by all parties to the contract
THINGS START TO MOVE MORE QUICKLY NOW
- Mortgage adviser discusses your loan options and costs/payment structure with you
- You decide how long you want to fix loan(s) and if you are offsetting or floating some funds with your mortgage adviser
- Mortgage adviser requests pricing and cash offer for your preferred terms
- You confirm the terms preferred and your mortgage adviser orders your documents from the bank, per your request
- Documents are sent to your lawyer directly from the bank
9. INSURANCE COVERAGES
- Get home insurance quotes and confirm details with your mortgage adviser
- Now is a good time to review your life/trauma/income protection coverages with your insurance adviser
- Insurance COC Certificate of Coverage goes to your lawyer listing the bank as the insured party
10. BANK HANDOVER
- You meet your bank manager at your preferred branch to set up your new accounts and arrange your mortgage payment schedules, including any additional principal reductions.
- Any bank cash contributions will be received by you post-settlement into your account
11. FINAL INSPECTION
- BEFORE you settle, inspect the property inside and out to ensure that the condition is acceptable. This is a good time to have a building inspector review the property if you have not already done so. Even new properties have issues!
- Anything amiss is a potential breach of the contract and can delay your settlement - stand your ground
- Typical things might be rubbish left behind or broken chattels damaged during moving out of the residents
- Keep calm and insist the property meets the contractual agreement
- You will need to reinspect the property after any negotiated repairs are made - discuss with your lawyer
12. SETTLEMENT PHASE
- Your Solicitor/Lawyer will settle the transaction with all parties and record your title
- Documents take 2 - 5 days to prepare and are sent to your solicitor from your bank.
- Your lawyer prepares loan documents, A&I, resolutions (if appropriate) for you to sign
- You either got to your lawyer's office to sign or they can email/courier if you are out of town
- Loan documents (and any outstanding conditions) are sent back to the bank
- Your bank reviews the documents and then wires the funds to your lawyer
- Vendor (seller’s) lawyer sends your lawyer a settlement statement
- Your conveyancing lawyer checks the settlement statement
- Your lawyer requests money from you if there is a shortfall (between the amount of the purchase price and what is required to settle, less deposit paid and bank loan) to balance
- Any shortfall of funds must be showing in your lawyer’s trust account before settlement
- Your lawyer will require certain undertakings from seller’s lawyers
- Your lawyer will make payment to the seller’s lawyers/other parties
- Seller’s lawyers ‘release’ documents into our space in Landonline
- Seller’s lawyers send notice of change of ownership to the local council (via your lawyer)
- SETTLEMENT CUTOFF is 4:30 pm – NZ Reserve Bank shuts down
- If you settle after 4 pm penalty interest charged may be due for the next day.
- Your mortgage adviser and bank inform you and your lawyer when the funds are drawn down.
- Your lawyer informs you when are now on the title and own the home.
- Your lawyer informs the real estate agent we have settled
- Your real estate sales agent gives you the keys to the property. YAY!
Before you move into your property it’s important that you have alerted your utility companies what services you need at least a week or two before arrival as 10-14 days may be standard for services. NOTE: Expect moving restrictions if we are in a COVID-Alert Level 2 or above. Check with your moving company on their protocols.
You might want to attend one of our Homeviews Workshops to get your confidence up! Each situation is unique so building your knowledge of the process and potential pitfalls is essential.
Find more information or to chat about your specific situation contact Susan Templeton for a FREE 30-minute call or zoom.