What Actually Happens When You Apply For a Mortgage: Part 2
If you missed part 1 where I explain how to calculate how much you need for a deposit and getting pre-approval for your mortgage, read it here. Then, join us for part 2, when you'll discover what happens when you've actually bought the property, and what the effing hell settlement is!
Stage 4: buy the property and get final approval
A note on buying your property – before you make an offer/bid at auction/offer any magic beans, always discuss it with your broker so they know what type of thing you’re going for. They'll be able to do their own research on the property and warn you of any bank restrictions on that area/property type.
So you buy your property and sign the contract of sale with the real estate agent. If you’ve bought at auction, you’ll generally pay a small amount of the deposit on the day, and then transfer the remaining amount by the next business day. That’s a fun moment, seeing a 5 figure sum sail on out of your account. Oh memories.
Then you call your broker, and they tell the bank. They’ll submit the contract of sale to the lender, who will then decide your fate.
At the point of offering final approval, the bank carries out their own valuation of your property, so be very very careful on paying too much for a property.
If you paid $600,000 for your property with a $60,000 deposit and preapproval for a loan for the remaining $540,000, but the bank thinks it’s only worth $550,000, you could be left with a much lower loan offer.
I know it’s shit and I’m sorry. But it just means you have to be on it with your research. Make sure you know what you think the property is realistically worth in the general market, as well as what it’s worth to you.
Stage 5: pre-settlement
Okay so you’ve bought the property, got your final loan approval, and you’re leading up to settlement.
Settlement is the day when the money reaches your vendor and you get official ownership of the property. Also known among The Broke Generation as the day you post a picture of keys in your hand with a caption something along the lines of “yeoowwwww #homeowners” to Instagram. Settlement day is usually 30, 60 or 90 days after you’ve bought the property, but it can be negotiated.
The pre-settlement stage is when your conveyancer will become your BFF.
They liaise with your broker and the vendors’ solicitor to basically execute the transfer of ownership and money.
You’ll be asked to sign a bunch of forms like the deposit release form – basically allowing the vendor to access the deposit funds before settlement day. Your conveyancer will advise you on all of the forms and how best to proceed. Ask as many questions as you need to at this point. You won’t understand a lot of the terms, but it’s important that you do.
You’ll also sign off on the final loan documents with your broker. They’ll go through everything in them with you, so make sure you’re listening (read: not hungover).
It’s also important to arrange a pre-settlement inspection of the property, where you ensure everything is as it was on the day you bought it. This usually happens 1 week before settlement, with the selling agent.
Stage 6: settlement
Yeeehah! You made it! Settlement day is more old school than you think. The money literally gets passed from your conveyancer to the vendors’, and once the funds are sent, you settle. If you’ve any additional funds to pay on top of the bank loan and initial deposit – like stamp duty or other fees – it’ll leave your account on settlement day. Make sure it’s in the nominated account! It’s kind of anticlimactic, in all honesty! We got a text from our bank basically saying congrats you’ve settled, and that was that.
Then, you’ll collect the keys (likely from the selling agent) and off you bloomin’ well go!
Please note that this is based entirely on personal experience and processes will vary from person to person, state to state.