Buyers Archives - Mortgage Advisers - Mortgage Lab

When you’re buying a house, there are a lot of things to think about.  One of the steps that is often a mystery for our clients is conveyancing; ie; what happens with their lawyer.

We spoke to Krystle Gardner from Gardner Barristers & Solicitors and asked her a few of our clients most common questions:

When do you first need to make contact with your Conveyancing Solicitor?

I strongly suggest that you make contact with your Solicitor as soon as you make the decision to start looking to purchase.  Earlier is better when you are selling your existing house too.

Making contact with your Solicitor this early will mean that you can move quickly should you find a house you like.  You can then confidently put an offer on it whilst also enabling your solicitor to work with you, and the Real Estate Agent, to make sure that you take all legal steps needed including the very important review and approval of the agreement for sale and purchase.

We’ve heard it can take a few days to process the legal documents.  What takes so long?

Agreement for Sale and Purchase

If you are buying your new house through a negotiation process (i.e. not at auction), there are a couple of steps that need to happen. The Real Estate Agent needs to prepare the draft agreement for sale and purchase and provide this to your Solicitor to review.  They will include any conditions of the purchase and approve the agreement before it is provided to the Vendor as an offer.  This process can take 24 to 48 hours depending on other demands.  Upon your offer being accepted by the Vendor, the condition process starts.

The condition process involves you working with your Mortgage Broker and your Solicitor to sort out a home loan with a Bank.  You’ll also carry out the legal enquiries on the house to make sure it is a good investment.  In addition (and at a minimum) you would also be:

The timing is a little different if you are buying your new house at an Auction.  In this case, your Solicitor will work with you to carry out the legal enquiries (legal due diligence) on the house well ahead of the auction.  Your Solicitor will also review the Agreement for Sale and Purchase prepared by the Real Estate Agent for use at the Auction.  This will mean you can confidently bid at the Auction and sign the agreement to purchase the house on the day.

Home Loan Documents

The bank, after providing your mortgage adviser with final approval of your home loan, will send your Solicitor a letter of instructions which enclose all your home loan documents.  For a basic home loan structure (i.e. not involving a Trust, Company or Guarantor) these home loan documents will usually include:

Your Solicitor will review the above home loan documents, and prepare any of the documents required by the Bank.  They will also the prepare the required Authority and Instruction for Electronic Registration of the Transfer and Mortgage Instruments with Landonline and the Tax Statement.  It’s then time to meet your Solicitor to sign the home loan documents and these additional documents.  At this meeting, they will provide you with advice on the general nature and effect of the documents.  You’ll also need a copy of your photo identification.

After receiving a copy of your insurance certificate for the new house, your Solicitor will then send the home loan documents, together with the completed solicitor’s certificate to the Bank.  They’ll ask that the money be drawn down to your Solicitor’s Trust Account to complete the purchase.

In my experience, after receiving the Bank loan instructions, your Solicitor will require a minimum of 48 hours to review and prepare the documents.  At this point, your Solicitor will be in a position to meet with you to sign these and give you the advice referred to above.  The home loan documents must, according to most Bank requirements, be returned to the Bank a minimum of 48 hours before the purchase date.  This ensures any issues can be addressed without it holding up the purchase of your new house.

Should I put my house in a Trust as well?  When would I need to decide that?

There are some circumstances in which it will be appropriate for your house to be put in a Trust.  But there are plenty of other circumstances in which it is not appropriate.  For example, the individual(s) purchasing the house intend to use part of the house as a home office or a holiday home.

Gardner Barristers & Solicitors know through experience that it is sometimes the more appropriate approach for clients to use relationship property law together with asset protection structures as the means to protect the house rather than the trust structure.

It is very important, therefore, that you seek legal advice early.  This means the right ownership structure for your circumstances is decided and established before the home loan documents are prepared.

Will you help me with my KiwiSaver withdrawal?

Your solicitor will absolutely help you with your KiwiSaver withdrawal.  They will also receive the money into their Trust Account to use as part of the purchase price of your house.


Krystle is the owner of Gardner Barristers & Solicitors in Auckland.

Phone: 022 395 9973
Email: krystle@gardnerlaw.co.nz,
Address: P O Box 35 317, Auckland 0753
Web: www.gardnerlaw.co.nz.

 

 

 

Purchasing your first home can be confusing.  The key to being ready to buy is to be organised.  Here are 3 things that first home buyers can do today to get ready to apply for a mortgage.

Order their Credit Report

Ordering your own credit report is free.  You can a nice and simple indication from Credit Simple or you can get the whole report (I recommend this) from Equifax. This second option can take a couple of weeks (my latest one turned up in 4 days though).  This will allow you to see exactly what the bank is going to see about your history.  If anything isn’t correct, now is the time to address that.

Tidy up your spending

Look through your last 3 months of bank statements.  Are you spending more than you earn or going beyond the limit of your bank account?  This is called going into “unarranged overdraft”.  To a bank, these 2 words send up a big red flag.  Once is usually ok, but more than that and getting a mortgage is going to be difficult.

You can limit how often this happens by setting up a spending account with automatic payments going out.  You’ll know exactly how much is going to be spent and how much is in the account.

Key point: don’t have an eftpos account attached to this expenses account.  You’ll end up over spending and going into overdraft again.

You can download a copy of The Mortgage Lab’s Excel Budgeting Spreadsheet here.

Get proof of your income

The bank is going to want to see your income and it won’t usually be enough to show them the money going into your bank account.  Banks like to see payslips because they show how your income is made up (ie; is it a base salary or commission).  The bank will usually want to see the most recent 3 payslips so if your HR department is a little relaxed in this area, get them working on it now.

If you are self-employed, you will need to have this year’s most recent Financial Statements (between October and March).  You can see our blog on when you need to update your Accounts.  Since Accountants are often busy, these can sometimes take a while to source so talk to your Accountant early.

Bonus Tip

If you’re ready to apply for a mortgage, it’s also time to look at your Life and Health insurance.  You’re going to be signing a contract for a large amount of money and need to make sure you can pay for it.  Find an insurance adviser who you like and feel is looking after your best interests.  We believe the best advisers only advise on insurance which is why we don’t offer it in our company.  They should be comparing several different products and choosing the one that suits you the most.

Summary

You can start getting ready to buy today by:

 

It often feels like you’re stumbling in the dark when you’re buying your first home.  So we’ve compiled a list of steps you are likely to go through in your house-buying adventure when purchasing at Auction.

When You’re Ready To Start Looking:

Start Shopping:

Some Auction Terminology

If You Win The Auction

The week before Settlement:

The day before Settlement:

Settlement Day:

Congratulations!  You’ve bought yourself a house!!

If you have less than 20% deposit, you are referred to (by the banks) as a Low Equity (or Deposit) Borrower.  You are required to meet a different set of criteria to borrowers with 20% or more.

Understanding the requirements from the banks is confusing.  We’ve come up with the most common questions to try to make it all easier.

How much is the absolute minimum deposit that I need?

The ideal deposit for any purchase is 20% but typically, the minimum required is 10% for an existing property and 5% for a new-build.  Note: your income needs to be very good for a 5% deposit but it is possible.  You’ll also need to explain why you haven’t saved more on your good income (for example, you’ve been paying down debt).

I heard banks weren’t lending to people with less than 20% deposit any more?

Banks can only lend out 10% of their total lending to “Low Equity Borrowers”.  Note: this is likely to change from January 2018 based on the Reserve Banks latest announcements.

This means, if you are a Low Equity Borrower and you want to borrow $500,000, the bank has to lend out another $4,500,000 to other “High Equity” Borrowers.  Each bank regularly decides (usually weekly but it can be daily) if they have enough to lend out so often a “no” today can be a “yes” tomorrow.  The short answer is, main banks are still lending to Low Equity Borrowers but it depends on the day.

Another alternative is to use the Welcome Home Loan facility.  This facility is exempt from the bank restraints but you must meet certain criteria.  We have a brief article on the criteria for the Welcome Home Loan that you can read here.

Can I be gifted my entire deposit or do I need savings?

The banks want to see that you are responsible with your money.  If you have been renting and have not been able to save money, then are you likely to pay down you mortgage?  Most banks, therefore, require that you have saved at least 5% of the purchase price.  So if you are buying a $500,000 home, you would need to have saved $25,000 on your own.  The rest of your deposit can be gifted by a parent.

What counts as “savings”?

What doesn’t count as “savings”?

Can I get a loan from my parents rather than a gift?

Yes, that’s perfectly ok.  As long as you can afford the required repayments to your parents and the mortgage payments, the bank will be ok with it.  Usually, the loan from your parents would be over 5 years which can lead to quite high payments though so do your calculations first.

Summary:

A 5% deposit is the minimum you typically need for construction lending.  A 10% deposit is the minimum required for existing homes.  Most banks don’t allow a pre-approval for Low Deposit Borrowers so you have to have an offer accepted on a property before you can apply.

 

Property prices have increased significantly over the past few years.  It can be tempting for buyers to be on the hunt for a bargain.  For most buyers, nothing says “desperate seller” more than a mortgagee sale.  This is typically an owner, or owners, that have been unable to pay their mortgage and the bank is now selling the property on their behalf.

There are some things that a buyer, particularly a first home buyer, needs to be careful of when purchasing a property under mortgagee sale.  We spoke to Kate Chivers from McVeagh Fleming Lawyers who had the following to say:

Mortgagee sales really are a case of buyer beware. A purchaser would essentially be purchasing a property on an “as is, where is” basis.

It’s important for a Buyer to realise that there will be no guarantee that the property purchased will come with vacant possession. On settlement the purchaser may be left to evict a tenant or even the previous owner.  This can be time consuming and costly. The purchaser might not get keys for the property on settlement and even if keys were available, we would recommend that the purchaser engaged a locksmith to change the locks. There have been instances where the sitting tenant or owner has maliciously damaged property subject to sale and this could be another unexpected cost a potential purchaser may have to attend to.

Prior to purchase there may not be the opportunity to view the property or complete an adequate level of due diligence. Even if viewings were available, things could change without the purchasers knowledge prior to settlement. Such changes would most likely be outside the purchasers control and would be unlikely to be compensated by the mortgagee.

We would expect to see the standard form ADLS sale and purchase agreement heavily modified most of these modifications are likely to be designed to protect the mortgagee such as exclusions to the standard vendor warranties. This means a purchaser would have no recourse if, after settlement, they subsequently found, for example, unconsented works or malicious damage.

Summary:

We realise Mortgagee Sale properties can be tempting and if the risks are positively mitigated then it may result in the purchase of a property at a bargain price.  We recommend you to engage a lawyer with experience in mortgagee sales early in the process and before making any offer to purchase.  Getting professional advice will help mitigate the risks and save you a lot of trouble and cost in the longer term.

 

Further Reading:

Not sure how much you need to put towards your first home?  We discuss deposit requirements in this article.

If you have less than 20% deposit, you are referred to (by the banks) as a Low Equity (or Deposit) Borrower.  You are required to meet a different set of criteria to borrowers with 20% or more.

Understanding the requirements from the banks is confusing.  We’ve come up with the most common questions to try to make it all easier.

How much is the absolute minimum deposit that I need?

The ideal deposit for any purchase is 20% but typically, the minimum required is 10% for an existing property and 5% for a new-build.  Note: your income needs to be very good for a 5% deposit but it is possible.  You’ll also need to explain why you haven’t saved more on your good income (for example, you’ve been paying down debt).

I heard banks weren’t lending to people with less than 20% deposit any more?

Banks can only lend out 10% of their total lending to “Low Equity Borrowers”.  This means, if you are a Low Equity Borrower and you want to borrow $500,000, the bank has to lend out another $4,500,000 to other “High Equity” Borrowers.  Each bank regularly decides (usually weekly but it can be daily) if they have enough to lend out so often a “no” today can be a “yes” tomorrow.  The short answer is, main banks are still lending to Low Equity Borrowers but it depends on the day.

Can I be gifted my entire deposit or do I need savings?

The banks want to see that you are responsible with your money.  If you have been renting and have not been able to save money, then are you likely to pay down you mortgage?  Most banks, therefore, require that you have saved at least 5% of the purchase price.  So if you are buying a $500,000 home, you would need to have saved $25,000 on your own.  The rest of your deposit can be gifted by a parent.

What counts as “savings”?

What doesn’t count as “savings”?

Can I get a loan from my parents rather than a gift?

Yes, that’s perfectly ok.  As long as you can afford the required repayments to your parents and the mortgage payments, the bank will be ok with it.  Usually, the loan from your parents would be over 5 years which can lead to quite high payments though so do your calculations first.

Summary:

In summary, a 5% deposit is the minimum typically need for construction lending.  A 10% deposit is the minimum required for existing homes.  Most banks don’t allow a pre-approval for Low Deposit Borrowers so you have to have an offer accepted on a property before you can apply though.