What Happens When You Buy a House?

Date Published: 1 June 2021

Step 1 to buying a first home: get pre-approval

Before you start going to auctions and bidding wildly on whatever takes your fancy you need a pre-approval from a bank. 

A pre-approval is a letter of offer of finance. It is basically a promise from a bank or finance company to lend you up to a maximum sum of money. It may have a list of conditions you need to meet, this is called a conditional letter of offer. A pre-approval with no conditions is creatively called an unconditional letter of offer. 

There is always an expiry date to a letter of offer, usually 2-3 months from the date of the pre-approval. This isn’t long but don’t worry, you can renew the offer making it ultimately valid for 6 months. Contacting a mortgage broker is the first step to determine whether you are ready to apply for pre-approval and to get the ball rolling. Don’t have a mortgage broker? Well luckily that’s what we do! Contact one of our brokers today.

Getting pre-approval comes down to:

• Proof of deposit. See related articles below.
  • Where Am I Going to Find My Deposit? 
  • Can I Take Out a Loan to Increase My Deposit? (TLDR: No you can’t).
• Proof of income. See related articles below.
  • This can include income from having a flatmate to help pay the mortgage.
  • Note that any debt will be taken into account when the bank calculates your income.

You may be eligible to use your KiwiSaver, get the First Home Grant or get the First Home Loan. See our article where we respond to frequently asked questions on the subject.

Your broker will take you through the process but if you love being prepared then check out How Can I Get a Mortgage? and Preparing for Your Mortgage: Documentation to go straight to the top of the class. Or just look at 3 Things First Home Buyers Can Do Today for a solid B+.

Step 2 to buying a first home: make an offer

Get shopping

So you have your pre-approval, it’s time to put on your shoes and go hunting. To be specific, put on your slip-on shoes as those babies will be coming off every open home you go to. 

Check out these articles to help you navigate your choices:

• Should l Purchase a New Build or an Existing House?
• Apartments – The Low-Down on High Rises
• Mortgagee Sales – What to Look Out for

Do your homework 

Once you’ve found a property you’d like to buy, do your due diligence. This usually means:

• Ordering a LIM and/or building report.
• Checking title for any potential issues; covenants, unit title/cross lease etc.
• Checking the drafted sale and purchase for settlement timeframes, chattels etc.
• Getting your lawyer to review all documentation.

With the advice of your lawyer and mortgage broker you will decide whether you are making a conditional or unconditional offer. 

Common conditions within an offer:

• Confirmation of finance.
• Satisfactory LIM and/or builder’s report.
• Confirmation that insurance cover is available for the property.
• Completion of remedial work by seller.

If you are making an unconditional offer you will need to work with your broker to get the property approved by the bank before you submit your offer. Note that all bids at auction are unconditional.

Check out these articles to help you understand the main types of property sales:

• Auctions – A Step by Step Guide
• 4 Tips on Making an Offer by Tender
• What is Price by Negotiation?

Make that offer!

Your offer is accepted – what next?

First off all – woohoo! Congratulations, you’re nearly there! If your offer was unconditional, now is the time you pay the deposit. It’s usually 10% and is non-refundable. If your offer was conditional then it’s time to work with the relevant parties to meet the conditions within the agreed timeframe. Once conditions are met it’s time to pay that deposit.

Step 3 to buying a first home: prepare for settlement

Once you’ve gone unconditional you can start preparing for settlement day.

First steps:

• Provide your lawyer with your IRD number and a copy of licence or passport.
• Organise home and contents insurance. This is also a good time to look at life and health insurance to secure your ability to pay your mortgage in unforeseen circumstances.

Two weeks out:

• Sign KiwiSaver First Home Loan Withdrawal and/or First Home Grant documentation. This should be done at least 10 days prior to settlement.
• Meet with your mortgage broker to determine your mortgage structure and interest rates. Your broker will talk you through it all, but if you can’t stand the suspense then check out our articles below:
  • 3 Questions to Ask Before Fixing Your Mortgage
  • Weekly Mortgage Payments vs Monthly Payments
  • Revolving Credit vs Floating Mortgage
  • What is an Offset Account?

One week out:

• Arrange with your lawyer to sign the loan documentation.
• The bank will contact you to arrange accounts.

Two days out:

• Complete pre-settlement inspection of property.
• Transfer any cash contribution towards purchase to your lawyer.
• Put bubbles in the fridge to chill.

Step 4 to buying a first home: settlement day

• Your lawyer will notify you once they have confirmation from the seller’s lawyer that the money has arrived in their account. The real estate agent will then arrange to hand over the keys.
• Pop the bubbles, fill the glasses and wander around the house saying the obligatory statements:
  • “Was that mark there before?”
  • “We can unpack the rest later.”
  • “I’m so relieved we’ve got this place, I couldn’t stomach another freaking open home.”

After settlement day

• Check that your mortgage account is set up as expected. If not, let your mortgage broker know. 
• In the coming years your broker is there to help you:
  • Refix your rates when the time comes.
  • Restructure your mortgage as your circumstances change over time. 
  • Apply for a top up. Often this is done to cover renovations that will ultimately add value to the property.
  • Eventually buy your next home or investment property.

You are now a home owner! Check out our Current Home Owner and Property Investor articles.

Mortgage Lab’s mission is to be the digital town square for financial decision-makers to gain knowledge about their current and future mortgage. Follow us on Facebook and LinkedIn or subscribe to our newsletter to be notified of our latest articles.