The search for your first home or investment property is an incredibly exciting but often daunting process. There are a number of factors to consider before finding the property that is right for you, and it pays to be as organised as possible to ensure that you can act quickly when the perfect property presents itself.
Before you begin the search
As a first time buyer, you may or may not have a price range in mind for your first property. So before you begin the search it is a good idea to meet with a personal banker or mortgage broker to get a gauge on your spending limit, and to understand the criteria you must meet in order for your bank to make you an offer of finance.
Most banks will require you to contribute a 20% ‘deposit’ for the purchase for your main home, and a 40% percent ‘deposit’ for investment properties which you will not occupy yourself. This ‘deposit’ is not paid to your bank, but represents the part of the purchase price for a property which you will pay yourself upon completion of the purchase (i.e. the money that will not come from a bank loan).
You should speak with a number of different banks as they will be able to offer you different interest rates, cash incentives, and in some instances may provide for low equity purchasers who are unable to meet the ordinary deposit requirements.
Provided you are buying your first home, you may be able to withdraw a large portion of your KiwiSaver balance if you have been contributing to a KiwiSaver scheme for three years or more. In addition, you may be eligible for a Home Start Grant from Housing New Zealand of up to $5,000 where you are purchasing an existing home, or $10,000 where you are purchasing a brand new home or land to build a new home on.
Pre-approvals can be obtained from your KiwiSaver provider for the KiwiSaver First Home Withdrawal and from Housing New Zealand for the Home Start Grant. These should be obtained as soon as possible to ensure there are no delays when it comes to making your first offer.
Once you have found a suitable property
There are a number of different ways which properties may be sold to prospective purchasers. In most instances, vendors will use a real estate agent to advertise and market their property. When it comes to selling the property, the vendor may consider offers from interested parties, or alternatively may take the property to auction where the property will be sold if bidding exceeds the vendor’s reserve price.
While auctions can be an exhilarating process, bids which are accepted at auction are ordinarily ‘unconditional’ and the successful bidder will be bound to complete settlement of the purchase. As a first home buyer it is preferable to avoid the auction process if possible, and make any offer to purchase a property subject to the ‘conditions’ which you may require.
These conditions may include a variety of matters, including but not limited to:
- a builder’s inspection;
- a satisfactory review of a LIM Report or council file for the property;
- finance approval from your bank;
- advice from your solicitor as to any instruments recorded on the Certificate of Title to the property; and
- Methamphetamine testing.
You will also need to consider the time frame required in order to satisfy your conditions and for you to complete settlement. It is prudent to provide for at least 10 working days to satisfy your conditions, especially where reports need to be prepared by the local Council or an independent expert such as a building inspector. The time frame for settlement should be discussed with your lawyer and will be dependent on the availability of settlement funds from your bank, KiwiSaver scheme, and Housing New Zealand (if applicable).
It is also relatively common for a purchaser to pay a ‘deposit’ to the real estate agent or the vendor’s lawyer upon satisfaction of the conditions in the Agreement (not to be confused with the ‘deposit’ required by your bank). This deposit provides the vendor with some certainty as to your intention to complete settlement of the purchase, and in the event you are unable to proceed with the purchase once your offer is unconditional, the vendor may be entitled to keep the deposit (amongst other penalties).
If possible, it is preferable to have your lawyer review the Agreement for Sale and Purchase before you make any offer to purchase a property, especially if you have any queries or concerns.
Once an Agreement has been reached
If your offer is accepted by the vendor, the real estate agent will confirm this with you and forward a copy of the signed Agreement for Sale and Purchase to your lawyer.
Your lawyer will then work with you to obtain and review the information/reports required to confirm the conditions contained in the Agreement. Once you have satisfied the conditions, your lawyer will then advise the vendor’s lawyer that these are approved. At this point the Agreement will be ‘unconditional’ and you will be required to settle the purchase on the date specified in the Agreement.
Once the Agreement is unconditional, your lawyer will need to meet with you to sign the documentation required to complete settlement. This will include documents to transfer the certificate of title to the property into your name, to register a mortgage on the Certificate of Title, and to document your loan arrangement with your bank. You will also need to ensure that you have suitable insurance for the property, from and including the settlement date.
Settling the purchase
On the settlement date, your lawyer will complete the transaction with the vendor’s solicitor and transfer the certificate of title to the property into your name. Following settlement, you will be able to collect the keys to the property from your lawyer or the real estate agent and then begin moving in.
Your property will likely be one of the most valuable assets you own in your life, and accordingly your lawyer should also take instructions from you to draft a Will. Signing a Will makes sure that your property and any other assets you own will be distributed in accordance with your wishes should something happen to you.
Good luck on your search for your first property. As discussed above, it is suggested that all purchasers consult with their lawyer before entering into an Agreement for Sale and Purchase. It is much easier to identify and resolve any issues with a transaction before you make your offer, instead of attempting to remedy the problem once your offer has been accepted.