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Renting Versus Buying
Studies conducted by Choice Magazine, The Housing Industry
Association and The Real Estate Institute of Australia, all show
that in the short term (up to three years), the property renter
may be better off financially. However, in the long term, the
homebuyer wins, because the capital gain in the property far
outstrips the renter’s savings income. All the study papers
conclude by claiming that it is almost essential to own your own
home by the time you retire and the question really comes down
to –
When you should buy, rather than if you should buy!
Some potential purchasers are discouraged from buying, because
of interest rates. Consideration should be given to a fixed
interest rate home loan. These loans may be slightly above the
variable rate but offer peace of mind and make budgeting
expenses more realistic. Housing values on the Northern Beaches
have always been strong making property in our area highly
sought after.
Home ownership has many long-term benefits and the most
important of these is the opportunity to build up an asset that
will provide a valuable hedge against inflation and financial
security in later life.
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Financing Your Purchase
Your real estate purchase is one of the biggest commitments you
will make in your life. The golden rule is not to over-commit
yourself financially and as a rule of thumb, you should check
that your total monthly financial commitments (including your
home mortgage repayment) do not exceed a maximum of 35 per cent
of your monthly income.
There are many avenues for housing finance to suit your
particular needs. As the first step towards buying a property,
we recommend that you sit down and discuss your financial
position with your Bank Manager or a Mortgage Broker. The
advantage of using a Mortgage Broker is that they have access to
a wide range of financial institutions and can recommend a
mortgage that will best suit your needs.
The amount you can borrow is measured by your income, your other
financial commitments and the size of your cash deposit
available. In addition, you will need to set aside an amount to
cover the normal additional expenses in purchasing a property,
such as Stamp Duty, solicitors fees and relocation costs.
Be prepared to provide evidence of your deposit saved, taxable
income and other commitments. This will assist in establishing
exactly how much you can afford to borrow and is also required
when your written application for finance is being completed for
presentation to the chosen lending institution.
Need help finding a reliable mortgage broker?
Click here
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Choosing The Right Property
Obviously the choice of your dream home will be influenced by
the limit of your financial resources and the type of property
best suited to your needs.
The choice between a house, home unit or duplex will depend on
your requirements and also your lifestyle.
Purchasers with a low cash deposit and insufficient income to
finance a normal loan to purchase the house of their dreams are
well advised to consider a cheaper home unit as the first step
towards owning a detached home later on. The home unit will
provide them with a roof over their heads and will increase in
value to ultimately realise (on re-sale) a larger cash deposit
towards the purchase of a home.
You should begin by determining how much you can afford to spend
and what type of property you would like to purchase, in
consultation with your mortgage broker and real estate agent.
Secondly, decide on your choice of suburb or suburbs that
contain properties for sale in the style and price range you can
afford.
Thirdly, only inspect properties that contain your basic
requirements and try not to let emotion guide your ultimate
decision to buy. The number of bedrooms, proximity to your
employment, the structural condition of the property, are all of
vital importance and should not be overlooked in the buying
process.
Check out the following:
• What is the public transport like?
• How is the traffic, especially during peak periods?
• How long will it take you to get to work?
• Does the area cater for your lifestyle, with schools,
hospitals, shops, restaurants, parks, sports and other services?
As your home may be your largest financial outlay, you also need
to consider the area from an investment point of view,
particularly it’s potential re-sale value. To compare property
values in various suburbs visit the web site
www.homepriceguide.com
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Buying By Auction
Or Private Treaty
There are two main ways to buy a house - auction or private
treaty.
If the house you want to buy is being sold by auction, it's
important you understand exactly what is involved. Attend some
auctions to get an understanding of how the process works so
that you are confident on the big day.
Houses being sold by auction usually have a reserve price, which
is the lowest price the vendor (seller) will accept. The reserve
price is confidential and known only to the auctioneer and the
vendor.
Arrange for finance beforehand. Make sure that you contact your
loan consultant and know exactly where you stand prior to
bidding at auction. Ask the agent for an indication of the
likely price range the property will bring, to see if the price
range is affordable and matches the amount indicated by your
mortgage broker.
Have a builder or architect thoroughly inspect the property you
are interested in buying. A pest report is also an essential
investigation to determine whether termites may affect the
property.
Always have your solicitor check the contract thoroughly before
the auction.
Pre-auction offers
If you really want the property and don’t want to bid at
auction, you can put in a pre-auction offer. Many properties are
sold this way. Some vendors will still want to go to auction,
but many are willing to negotiate.
If bidding does not reach the reserve price, the auctioneer will
declare the property 'passed in'. Usually the agent will
negotiate with the highest bidder straight after the auction to
see if a sale price can be agreed upon. Convention has it that
the highest bidder has first right to negotiate with the
auctioneer if the property did not reach the reserve price.
Read thoroughly the terms and conditions of the Contract of
Sale. If you have any queries check them with your solicitor or
conveyancer. You should satisfy yourself regarding the title
documents which detail the names of owners and any encumbrances,
mortgages, easements and caveats, obtain a full list of annual
outgoings such as council rates and body corporate fees, and the
zoning of the property. If the proposed property is zoned other
than residential, or if there are any proposals for rezoning,
consult your solicitor or conveyancer.
Also check details of any proposals by governments, councils or
authorities that may affect the property - that is, there may be
plans to put a highway next to the property. Also for council
permits for any renovations, additions or alterations and if the
property is under strata title, inspect a copy of the plan of
strata subdivision. Your solicitor can help with these
investigations.
When Your Bid Succeeds
If your bid is successful you will be required to pay the
deposit (usually 10% of the purchase price) right there and
then. Immediately after the bidding, contracts are signed and
the deposit is paid. There is no cooling off period. You are
committed to buy. A bid made subject to finance is not
acceptable to the auctioneer.
How To Buy Through Private Sale
If you are buying through a real estate agency or directly from
the owner, don't be rushed. Take your time. Ask questions. Check
the Contract for Sale with your solicitor. Make your assessment
and offer what you think the property is worth. Pittwater Real
Estate is always happy to supply sales data for the local area.
However as a buyer you must appreciate that the agent should do
everything possible to maximise their vendor's sale result.
After all, it is the vendor who pays their commission, not the
buyer. Again, don’t forget to have a pest and building report
carried out on the property.
Buying a Block of Land.
You may decide to buy a block of land to satisfy your desire to
build a new home; or, as the first step towards home ownership
if your cash or income is insufficient to purchase a home right
away. Many parents encourage their children to invest in a block
of land as soon as they gain employment; firstly, to built up an
asset for their future and secondly, as a means of forced
monthly savings by way of keeping up the mortgage repayments.
The selection of a suitable building site should not be decided
on price alone. Other factors to carefully consider are: -
•
The location and quality of surrounding houses.
•
The shape and size of the lot.
•
Access to the lot and the cost of infrastructure such as
driveways and supplies of amenities such as sewer and water.
•
Soil type to determine the extent of foundations required to
support a home. This can be a huge hidden cost.
•
Are there any easements or other impediments to building on the
land? Are there any protected tree species on the block?
•
Are the boundary survey pegs in place?
•
Have there been any previous development applications on the
land?
•
Reviewing the contract and visiting your local council may
answer many of these questions.
Stamp Duty
The sale of land with improvements will be subject to Stamp Duty
which is a state tax and is payable by the purchaser. It is
important to know how much stamp duty you will be liable for on
your purchase as it is usually a significant amount and should
be therefore factored into the offer you will make to the
seller. Stamp duty is calculated on a sliding scale according to
the purchase price. Use our handy stamp duty calculator to
assess how much stamp duty will be payable on the purchase of
your property.
Stamp Duty Calculator
Stamp duty adds significantly to the cost of buying a
property. Find out just how much it will cost in your state or
territory.
Click here for a Stamp Duty Calculator
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Negotiating Your Purchase
When you have inspected a number of properties for sale in the
suburb of your choice and in your price range, it is a
relatively simple task to compare these values to the ultimate
property you have decided to purchase.
Once you have made a decision to buy, don’t waste time
contemplating the purchase, particularly if the price seems
realistic in comparison with others you have inspected.
Statistics show that properties listed at an asking price
closest to their ultimate sale price, sell within the shortest
possible time.
From experience a genuine property vendor will either
immediately accept your price, or may “counter” your offer by
communicating the lowest price he is prepared to accept. Tempers
become frayed if this process is repeated indefinitely and it is
therefore a wise decision to make your initial offer close to
the price you are prepared to pay
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Two Ways To Buy a Property
If you have inspected a home with Pittwater Real Estate and you
would like to try and buy it, you have two options to consider.
These options represent the two different ways that property can
be purchased in New South Wales, and are outlined below.
Option 1
First you must come to a verbal agreement with the owner on
price (which can take anywhere from hours to a few days). Once
the price has been agreed to we will send a copy of the contract
to your solicitor for him/her to proof. You will presumably
order a Building & Pest Inspection and finalise your finances.
This search process will take you 2-5 days. At this stage you
have nothing but a verbal agreement with the owner and you have
paid no holding deposit. The property is still For Sale and the
owner/s will continue to permit prospective buyers to inspect
the property.
Once your Solicitor/Conveyancer, the Building & Pest Inspector,
and your Finance Broker have given you the all clear, you
produce a full 5% or 10% deposit and exchange contracts. The
deal is now done.
There are advantages and disadvantages for you when using Option
1.
Advantages
You have a verbal agreement with the owner only. You have not
committed any money to the property whilst you are doing your
searches. This means that if any of the three above named
professionals advise you that you cannot go through with the
purchase, you can “walk away” and you have lost nothing.
Disadvantages
Because you have nothing more than a verbal agreement, while you
are doing your searches you risk losing the property at anytime.
The two most common ways to lose a property are (a) another
buyer likes the property and wishes to pay more than you,
sooner. (b) The owner changes their mind and decides not to sell
to you.
Option 2
Instead of stating your price interest in the property verbally,
Option 2 requires you to state it in writing. (The agent will
show you the standard form to use). This must be accompanied by
a holding deposit equal to 0.25% of the price i.e. $250 for
every $100,000). This will be presented to the owner/s for their
consideration. If the owner/s deem the offer unacceptable the
holding deposit is returned to you immediately. If the owner/s
decide to accept your offer they will “sign off on it”. The
result of them doing so means they have agreed to sell the
property to you and are giving you a cooling off period for you
to do your searches without rushing.
The Contract For Sale is
immediately sent to your Solicitor/Conveyancer. This cooling off
period runs for 5 full business days (weekends not included) and
is ample time for your Solicitor/Conveyancer, Building & Pest
Inspector and Finance Broker to carry out the searches for you.
During this cooling off period the home is legally off the
market and cannot be sold to anyone but you. The Owner does not
have the option of changing their mind/s or selling to another
party who may show interest at a higher price. By 5pm on the
last day of the cooling off period you need to pay the full
deposit minus the holding deposit you have already paid. At this
stage the deal is done.
95% of sales negotiated by Pittwater
Real Estate are Option 2. There are advantages and disadvantages
for you when using Option 2.
Advantages
A cooling off period gives you the purchaser complete control
over the property. The owner cannot sell to anyone else and you
are assured of not losing the property. The price cannot be
driven higher in the event of another offer being made as the
owner has already signed off on your offer. The reason why
nearly all purchasers choose Option 2 is because of the risk of
losing a 0.25% holding deposit is deemed by these purchasers as
a lesser risk than the risk of losing the property to another
buyer or having to pay a higher price due to buyer competition.
Disadvantages
If during the cooling off period you change your mind and decide
to pull out of the sale, you can at any time. However, to
compensate the owner/s for having their property off the market
for a week you will forfeit your holding deposit to the owner/s.
There have been times during the cooling off period that
unexpected issues have arisen as a result of a building and pest
inspection. In these rare instances the purchaser/s have felt
the need to ask for a reduction in the negotiated price and that
has been considered by the owner/s on a case-by-case basis. You
only forfeit your holding deposit if you decide to walk away
from the sale altogether.
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Why You Need a Conveyancer or Solicitor
Conveyancing is the legal transfer of property from one person
to another. It involves a number of tasks and can be complicated
and time consuming. In carrying out the conveyancing on your
property, your solicitor or conveyancer is responsible for
protecting your interests and will arrange a title search to
ensure the vendor has the right to sell the property and whether
there are any caveats on the property that need to be removed.
They will also advise of any government duties on the purchase,
prepare all necessary documents - such as transfer of land on
behalf of the purchaser, calculate adjustments for rates,
insurance etc and arrange all settlement details.
When you call on the services of a solicitor or conveyancer, it
is advisable to ask what they charge and what the price
includes.
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Owning Your Own Home Sooner
Your mortgage will be the largest financial commitment you will
have in your life. Make reducing the amount of interest you pay
and the term of the loan your major focus. Endeavour to pay $12
for every $1,000 of your loan. For example, if you have a
$200,000 loan, try to pay back $2,400 per month if possible. That will reduce
the term to approximately 10 years and take interest rates out
of the equation as the term of the loan will be largely
unaffected by rate fluctuations.
Create a budget
By knowing where your money is going, you can make cutbacks
that, over time, will give you thousands of additional dollars
to plough into your mortgage. Don’t underestimate how small
amounts can compound - for example a cappuccino a day swallows
up $1,000 a year.
Fortnightly payments
Pay your mortgage every two weeks instead of monthly. Organise
your financial institution to directly debit your payments
fortnightly. This will save you both interest and will reduce
the term of the loan.
Taking your lunch from home
This is a healthier alternative for you and your children to
buying it and will more than halve the cost of buying from the
local takeaway.
Buy your wine and beer by the case
Take advantage of those specials at the bottle shop and save.
Limit lottery and lotto tickets
If you must, keep it to one a month.
Cut up your credit cards
Unless you are disciplined enough to pay off the full amount
each month so that no interest attracting balances remain. If
you do use a credit card choose one with an incentive reward
program attached.
Your car
Consider purchasing a more fuel-efficient car. Smaller cars are
both more economical with petrol but also with mechanical
repairs and maintenance. According to the NRMA website, the
difference between the average weekly running costs of a Toyota
Landcruiser and a Toyota Rav 4 is $87.50 per week. That’s $4550
extra you could put towards your mortgage. Visit the NRMA
website at www.nrma.com.au in the “behind the wheel” section for
comparable car running costs.
Buy your clothes at sales
Purchase according to a pre-determined plan that builds a
wardrobe of co-ordinated pieces rather than buying on impulse.
Plan your meals in advance
Shop weekly at the supermarket rather than going to the shops
each day. This will help you to avoid impulse buys. Look for
generic brands of similar quality to the more expensive
products. Buy fresh food and make meals from scratch instead of
using frozen, pre-prepared meals. Try to limit the amount of
takeaway you eat each week.
Check out special movie deals
For example half-price Tuesdays, adults for children’s prices
and special prices before 5pm. You can buy books of cinema
vouchers in advance, which can also be cost effective.
If interest rates drop, keep your repayments the same
By maintaining the payments you will pay your loan off faster.
When you receive a pay increase
Put at least 50 per cent of the after-tax amount towards
additional repayments.
Christmas Club
We all know Christmas is an expensive time of year when it’s
easy to go over budget on presents and rack up credit card debt.
Sit down at the beginning of the year and decide on a Christmas
budget. This should not only include presents for family and
friends but also an entertainment allowance, particularly if you
host Christmas lunch at your house. Work out how much per week
you need to put away to cover your Christmas costs and open a
bank account specifically for this purpose. Just remember, don’t
go over your budget and don’t dip into the account for anything
else. If there are any funds left over after Christmas, pay them
off your mortgage.
A useful website full of hints & tips on how to own your home
sooner is
www.yourmortgage.com.au
Visit our Calculators page to help with planning your budget.
Click here.
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The First Home Owners
Scheme
If you are buying or building your first home, you may be
eligible for benefits under the First Home Owner Grant Scheme
and/or the First Home Plus Scheme.
The First Home Owner Grant Scheme is a joint Australian and NSW
Government initiative offering eligible NSW first home buyers a
$7000 grant. The grant applies to residential dwellings only and
does not apply to vacant land.
The First Home Plus Scheme provides exemptions or concessions on
transfer duty and mortgage duty for eligible first home buyers.
This includes vacant land on which you intend to build your
first home.
Both schemes are administered by Office Of State Revenue to help
first home buyers in NSW to purchase or build their first home.
For more information visit the Office of State Revenue website
www.osr.nsw.gov.au
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Purchasing a
Property If You Live Overseas
Foreign purchasers intending to acquire real estate in Australia
must seek prior approval from the Government through the Foreign
Investment Review Board unless specifically exempted by the
Foreign Acquisitions and Takeovers Regulations.
All contracts by foreign persons to acquire interests in
Australian real estate must be made conditional upon foreign
investment approval, unless approval was obtained prior to
entering into the contract.
For properties to be purchased at auction, prior foreign
investment approval must still be obtained and advice provided
whether the parties were successful or not, and if so, a copy of
the signed contract forwarded to the Foreign Investment Review
Board (FIRB) after the auction
For further information visit the website
www.firb.gov.au
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Calculators
Visit our Calculators section to help with your mortgage and
budget. Click here
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