HOME INSURANCE

A step-by-step guide to home buying

Real Insurance
Home Buyers’ Guide
Contents
How to use this guide	
Brought to you by Real Insurance	

3
3

Market outlook 2013	
Is the market looking up?	

4...
How to use this guide
Buying a home is one of the biggest decisions you’ll ever make, so it’s important to get it right. T...
Market outlook 2013
Is the market looking up?
After several years of subdued growth, the Australian housing market is at l...
What’s your dream home?
Deciding what’s important to you
Just a little thought and preparation before you start house-hunt...
Your new home checklist… continued
Must-haves
Some questions to consider

o

Do you want a house, townhouse or apartment?
...
New or old?
Deciding which type of home to buy
While an established older home can have charm and a sense of history, buyi...
New or old? The pros and cons... continued
New homes

Established homes

3

7

O
 lder materials, such as old wiring can
e...
Your open house checklist
What to look for
Now you know what you’re looking for, it’s time to find a home that fits the bi...
Property checklist... continued
Some features to consider

o

Size and shape of rooms will fit your furniture.

o

Storage...
Show me the money!
Understanding home finances
While home finance doesn’t have to be hard, it is worth taking the time to ...
A helping hand from the government
Depending on your personal situation and your state, there are a whole range of governm...
A helping hand from the government... continued
State

WA

Grants and incentives

Where to find out more

First Home Owner...
Added extras... continued
Other charges and costs
Here are some other costs you might need to budget for:
•	 Building and ...
Choosing a loan... continued
In December 2011, ANZ made headlines by announcing that the bank would now follow a completel...
Mortgage insurance... continued
Mortgage insurance is compulsory if you borrow more than 80% of the value of your home — a...
Doing your homework
Ten essential questions to ask before you buy
By asking these simple questions, you can avoid some of ...
Going, going, gone!
How to buy at auction
Auctions can be exciting, daunting and overwhelming, all at the same time. By un...
Getting ready to bid
You can only bid in an auction if you are in a position to make a deposit on the day. The size of the...
Your auction checklist... continued
To do list

o

Do a final inspection.
Set your limit.
Be ready to pay the deposit and ...
Bring in the lawyers
Working with your legal team
Your conveyancer or solicitor is there to support you and make the proce...
Look beneath the surface
Building and pest inspections
Even new houses and apartments can have hidden flaws that could end...
Protecting your home
Getting the right insurance
After your family and your health, your home and belongings are some of t...
Protecting the income that pays your mortgage
This could also be a good time to think about protecting the income that pay...
Home sweet home!
Moving without hassle
Congratulations on your new home! Here are some tips to help move in without the ha...
Your moving checklist... continued
To do list

Your notes

Change of address for:

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RTA.
Insurance...
Five ways to make packing and unpacking easier
1.	 Start packing as early as possible — at least six weeks before you move...
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Step by Step Home Buyers Guide From Real Insurance

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Buying a home is one of the biggest decisions you will make so it’s important to get it right. This step by step Home Buyers Guide is filled with practical tips and useful information – brought to you by Real Insurance.

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Step by Step Home Buyers Guide From Real Insurance

  1. 1. HOME INSURANCE A step-by-step guide to home buying Real Insurance Home Buyers’ Guide
  2. 2. Contents How to use this guide Brought to you by Real Insurance 3 3 Market outlook 2013 Is the market looking up? 4 4 What’s your dream home? Deciding what’s important to you Your new home checklist 5 5 5 New or old? Deciding which type of home to buy The pros and cons Buying off the plan 7 7 8 8 Your open house checklist What to look for Property checklist 9 9 9 Show me the money! Understanding home finances How much should you spend? A helping hand from the government Added extras Choosing a loan Mortgage insurance Loan pitfalls Top three tips for paying off a loan faster Applying for a loan 11 11 11 11 13 14 15 16 16 16 Doing your homework Ten essential questions to ask before you buy 21 21 21 21 21 Look beneath the surface Building and pest inspections What does an inspector do? Questions to ask your building inspector Questions to ask your pest inspector 22 22 22 22 22 Protecting your home Getting the right insurance 23 23 Getting the right level of cover Some things to look for Protecting the income that pays your mortgage 23 23 24 Home sweet home! Moving without hassle Your moving checklist Five tips for choosing a removalist Five ways to make packing and unpacking easier 25 25 25 26 27 17 17 Going, going, gone! How to buy at auction How auctions work Getting ready to bid Five tips for successful auctions Negotiating after an auction Your auction checklist Bring in the lawyers Working with your legal team What does a conveyancer do? Choosing a conveyancer Questions to ask your conveyancer 18 18 18 19 19 19 19 2
  3. 3. How to use this guide Buying a home is one of the biggest decisions you’ll ever make, so it’s important to get it right. This guide is packed with practical tips and useful information to help you find, finance and protect your dream home — and potentially save thousands. The guide includes step-by-step information and useful tips on: 1. Choosing the perfect location and home for you and your family. 2. What to look for at an open house inspection. 3. Understanding home loans and how to apply for finance. 4. What to ask real estate agents. 5. How to keep your cool during an auction. 6. Getting the right legal advice and arranging inspections. 7. The kind of insurance you may need. 8. Hassle-free moving. Brought to you by Real Insurance Real Insurance is part of the Hollard Insurance Group — one of the world’s most trusted insurers, with over 6.5 million policies worldwide. We’ve been providing award-winning insurance products to everyday Australians since 2005. Read it before you start looking for a home, then keep it with you when you’re searching online for a home loan, out house-hunting or before you head off to an auction. Use the handy checklists to take notes and keep track of your progress. Important notices Of course, this guide provides general information only, and is no substitute for personalised advice from a professionally qualified adviser. It does not take your financial needs and individual circumstances into consideration. If in doubt, we recommend you seek expert advice and read the relevant documentation (including Product Disclosure Statements) before making any decisions about buying a home, obtaining finance or taking out insurance. Real Insurance is the trading name of the issuer of Real Insurance’s general insurance The Hollard Insurance Company Pty Ltd. You should consider the Product Disclosure Statement available at www.realinsurance. com.au in deciding if a Real Insurance product is right for you. But you don’t just have to take our word for it. We’ve been honoured with some of the country’s most prestigious insurance awards, including the 2012 Money magazine Award for Australia’s most affordable Home and Contents insurance for our Essential Cover. We’re also recommended by nine out of 10 of our customers. Visit www.realinsurance.com.au to find out more. © Real Insurance Welcome to the Real Insurance Home Buyers’ Guide. It’s designed to give you practical, independent information about buying a home. Our aim is to help take the stress out of the whole process, so you can make better-informed decisions and get the home you really want. We help you protect what’s important to you, including your family, home, belongings, cars, pets and even your bicycles. We’ve also worked hard to make our products as affordable as possible, so everyone can enjoy the peace of mind that top quality insurance cover brings. 3
  4. 4. Market outlook 2013 Is the market looking up? After several years of subdued growth, the Australian housing market is at last showing signs of life — but there may still be plenty of bargains around if you know where to look. After six interest rate cuts since November 2011, the housing market could be looking up. In December 2012, the Reserve Bank cut its cash rate to 3%, a level not seen since the depths of the financial crisis in 2009. And according to the Australian Bureau of Statistics capital city house price index, prices in a number of capital cities have started to respond, bouncing back from two years of flat or falling prices. Nonetheless, housing in many parts of Australia may be more affordable than it’s been for some time. The Housing Industry Association (HIA) Housing Affordability Index climbed 5.3% in the September 2012 quarter, to be up 15% over the year. According to the HIA, rising incomes, falling interest rates and easing prices have all helped to make housing more affordable than it has been for some time. Figures from Australian Property Monitors* show that Adelaide and Hobart remain Australia’s most affordable housing markets, with Adelaide having the cheapest units of all mainland capitals. House prices in Hobart, already the cheapest in the nation, fell sharply in the September quarter, declining 2.0%. Brisbane is Australia’s second fastest growing city, but it still has the lowest house prices of all the mainland capitals. Even in Melbourne, unit prices fell for the sixth straight quarter in September 2012, after falling 0.8% in 2011–12 financial year. Australia’s most expensive cities to buy a home are Sydney, Darwin, Canberra and Perth. While Darwin recorded the biggest house price hike in 2012, rising 6.7% over the year to September 2012, Sydney is still Australia’s most expensive city to buy a house, with a median price of more than $640,000. But the figures also show that there are enormous differences in price movements between different states, regions and suburbs — making local research just as important as ever. The state of the market: established house prices across Australia* Median unit price (September 2012) 12 month price index change (Sep 2011 – Sep 2012) Houses Units -1.9% -0.4% -1.1% 7.4% -1.1% -6.1% 0.1% 0.6% Adelaide $433,651 $294,989 -0.5% Brisbane $430,965 $362,049 -1.2% Canberra $556,723 $400,773 -0.1% Darwin $610,592 $406,099 3.0% Hobart $305,889 $244,633 -4.7% Melbourne $523,804 $381,154 -0.8% Perth $537,267 $348,293 1.3% Sydney $641,890 $458,562 1.0% © Real Insurance Median house price (September 2012) * Source: Australian Property Monitors House Pricing Report September 2012 4
  5. 5. What’s your dream home? Deciding what’s important to you Just a little thought and preparation before you start house-hunting can save you weeks of looking and help you find your dream home faster. By knowing exactly what you want, you can also avoid compromising on features that turn out to be an essential part of your family’s lifestyle. With so many homes to choose from and so much to think about, hunting for a new home can feel overwhelming. That’s why it makes sense to get organised before you begin. Start by making a checklist of the features you’re looking for in your potential home. As well as narrowing down the number of places you need to see, a checklist can help you find a home that really suits you and your family’s lifestyle and needs. It can be useful to divide your checklist into ‘locations’, ‘must-haves’ (things you can’t do without) and ‘nice-tohaves’ — things you would like but can either do without or fix up later on. Remember to think about how your needs may change in the future. For example, if you plan on having more children or you may need to find room for elderly parents later on, then it’s important to have enough room upfront. In other words, think about your larger life plan — and decide whether you’re looking for a five-year house or a 20-year house. Your new home checklist Location, location Some questions to consider Is it in an affordable area? o Is it one that suits your lifestyle (for example, close to the beach if you spend a lot of time there)? o Would you be happier in a new area or an older, established neighbourhood? o Is there adequate public transport if you or your children use it? o Is it in reasonable distance of places important to you and your family, such as shopping centres, school or childcare, park, places of worship and so on? o How do the schools in the area rate? o Is it close to other family members and friends, if that’s important to you? o Is the area safe? What is the crime rate? o Is the house in a flood or fire zone? Remember that homes close to the bush or in a flood zone will attract a higher insurance premium. © Real Insurance o Your answers 5
  6. 6. Your new home checklist… continued Must-haves Some questions to consider o Do you want a house, townhouse or apartment? o Are you looking for a new or established home? See “New or old?” on page 7 o How many bedrooms or bathrooms do you need for your present (or future) family? o If a family member has mobility issues, is the house easy for them to get around? o Is there a garage or carport, or at least a place on the street to park your cars? o Your answers Are you willing to renovate? Nice to haves Some questions to consider Do you want a pool or spa? A landscaped garden? Fireplaces and period features? What colour schemes appeal to you? Do you want carpets or floorboards? What kinds of curtains or blinds do you want? What are your dream kitchen appliances? Desired lighting and bathroom fittings? What other features are you looking for? © Real Insurance o o o o o o o o o Your answers 6
  7. 7. New or old? Deciding which type of home to buy While an established older home can have charm and a sense of history, buying a new home lets you take advantage of the latest energy efficient, low maintenance building technologies. By buying or building a brand new home, you may have greater control over features and materials, allowing you to personalise it from the ground up. But that extra control can come at a cost. Existing homes are not only usually less expensive per square metre, they are likely to be located in a more established area, near schools, transport and jobs. One solution could be to buy an apartment off the plan in an established suburb. Buying off the plan simply means buying an apartment, strata unit or retirement village home that has been planned and designed but not yet built. Depending on what state you live in, you could be eligible for thousands of dollars in state government incentives, such as stamp duty discounts. But it’s important to do your homework before you buy. A good place to start is by contacting your local Office of State Revenue to find out more. New or old? The pros and cons New homes 3 Costs are more predictable. 3 M ore energy-efficient, which can save you money on power and water bills. Established homes G enerally cheaper per square foot than new homes. L ikely to be in new neighbourhoods attracting people with similar lifestyles, so it may be good for making friends. 3 O lder style homes can have beautiful design elements from past eras that are very difficult to copy. 7 M ay be remote, with commuting taking more time and money. 3 E stablished neighbourhoods often have good transport. 3 M ay be closer to services, transport and shopping. 7 M ay be more parking problems, crowding and noise pollution in older, more established areas. 3 Y ou get to choose the design elements, such as the colour schemes, fixtures, fittings and flooring. 3 M ay have appealing design features of a particular era. 3 New building materials may be easier to match or replace than old ones. 7 Unless you renovate, you have to accept the previous owner’s taste. 3 New homes usually have a one-year warranty. 7 Older plumbing, wiring and fittings may need replacing. 7 Some warranties don’t cover everything that could go wrong — so be sure to check yours so there are no nasty surprises. 7 Building materials may be harder to find and replace. Location 7 Design Maintenance M ay lack good transport, shops and schools. © Real Insurance 3 3 Price 7
  8. 8. New or old? The pros and cons... continued New homes Established homes 3 7 O lder materials, such as old wiring can easily be overloaded, causing safety hazards. 3 New homes are usually more fire-safe and may have new security and garagedoor systems already fitted. 7 Wood rot in balconies or decks can cause accidents. 7 Safety Building guidelines for safety are stricter than in the past. New homes built near bushland can be more prone to floods and fire, compared to established homes in inner-city suburbs. Buying off the plan 3 3 By buying a new home being built in an established area, you can enjoy the best of both worlds. 3 Y ou may be able to choose the finishes, fixtures and other design features, so you’ll save time and money on renovating. New building materials may be easier to match or replace than old ones. 3 New homes usually have a one-year warranty. 3 Design You may enjoy government incentives, such as lower stamp duty concessions or a home buyer’s grant, depending on what state you live in. 3 Location 3 M any developers will accept a deposit bond rather than a cash one, so you can buy now and pay later. 3 Price You can buy tomorrow’s property at today’s price, potentially saving money. 3 7 T he housing market and interest rates could move against you, so your home could lose value before you move in. 7 Construction delays could mean your property may not be ready on time, and renting elsewhere while you’re waiting could be expensive. 7 If your financial circumstances change, you mightn’t be able to resell the property, or on-sell it while it’s being built. 7 I f it’s in a newer location it may not have good facilities such as transport, schools and shopping centres. 7 Y ou don’t get to walk through your house and check it before you buy it, so it may not look like the pictures or models. 7 Shoddy workmanship could leave you with the hassle and expense of maintenance — so check your builder’s reputation. 7 Again, check your builder’s reputation, as a hastily constructed home could have potential safety hazards. Building guidelines for safety are stricter than in the past. New homes are usually more fire-safe and may have new security and garagedoor systems already fitted. Cons Maintenance Safety © Real Insurance Pros 8
  9. 9. Your open house checklist What to look for Now you know what you’re looking for, it’s time to find a home that fits the bill. But don’t forget to look for telltale signs of underlying problems that could prove expensive in the future. Before you head off to an open inspection, it pays to do some groundwork. First, you might want to check your ‘must-have’ list to make sure the home you’re going to inspect has the features you need (See “What’s Your Dream Home?” on page 5 for more). This handy checklist helps simplify your house-hunting by making it easy to check the quality of the home you are looking to buy. Use it to help make sure each house is value for money and to track the potential cost of essential repairs and alterations ahead of time. If you’re keen on a house, it’s a good idea to visit in on different days and times to see how it is in different weather, so you’ll know if it’s too hot, too cold or too dark, or if there are any noise problems, such as barking dogs, traffic or noisy neighbours. Property checklist The complete package Some features to consider o o o Your priorities Number and size of rooms in the property. Neighbourhood safety (including lighting at night). Nearest public transport is and how frequently it runs. o Location of nearest shopping centre, medical centre and other facilities. o Driving distance from your workplace, children’s school or childcare. o Proximity of neighbours — any noise/conflict? Inside o o o o o Your priorities © Real Insurance Some features to consider The layout of the bedrooms. Any mould and damp in walls and ceiling. Insulation in ceilings or walls. Ceiling fans and built in heating and cooling systems. Any cracks in the walls (this can indicate structural problems, so check if cracks have been filled and painted over). 9
  10. 10. Property checklist... continued Some features to consider o Size and shape of rooms will fit your furniture. o Storage space including cupboards, pantries, built-in wardrobes, an attic or space under the house. o Your priorities Water pressure of taps in kitchen, laundry and bathroom (including the shower). o o o o o o o o o o o Length of time for the hot water to heat up. Condition, size and age of the hot water system. Bathroom ventilation. Windows open and close, with locks and fly screens. Internet signal strength. Mobile phone signal in and outside the house. Condition of kitchen cupboards and drawers. TV reception (if there’s a TV in the house). Location of power points, and whether they work. Condition of window and floor coverings and tiles. Rooms that need repainting. Outside Some features to consider Direction the house faces (to make sure it won’t be too hot in summer or too dark in winter). o Condition of fences and how much maintenance the yard will need. o Parking spaces in the house or off-street parking. o Fire rating of home and proximity to rural fire service if home is close to bushland. o Condition of outdoor features such as septic or water tanks, clotheslines, sheds, letterbox decks and swimming pools. o Slope of yard (to see if it will flood during rain) and under the house to see if it’s very damp or has puddles. o Condition of the roof and guttering. o Termite tracks on any wooden parts of the house. (See “Look beneath the surface” on page 22 for more.) o Working garage doors and fuse boxes. © Real Insurance o Your priorities 10
  11. 11. Show me the money! Understanding home finances While home finance doesn’t have to be hard, it is worth taking the time to consider your options. Remember, the right decisions today could end up saving you thousands over the years ahead. If in doubt, seek expert advice. How much should you spend? It’s important to be honest with yourself about what you can comfortably afford to repay. Just because you can borrow a certain amount, it doesn’t automatically mean you should. Borrowing too much could create unnecessary stress if your circumstances change — if you lose your job, or one of you stops working to take care of the children, for example. That’s why it’s a good idea to have a buffer in place, such as extra payments you can redraw from your home loan when times are tough. Remember to factor in the extra costs of buying a home — from stamp duties and conveyancing to mortgage insurance (required if your deposit is less than 20% of the house price). Remember too that interest rates can and do rise. So it makes sense to calculate how much your repayments would be should interest rates go up substantially. It can also be worth considering Income Protection insurance to help make sure you can keep up with your mortgage payments if you’re temporarily unable to work due to illness or injury. Visit www.realinsurance.com.au to find out more. How much will it cost? House price Deposit (20%) Other upfront costs Loan amount Mortgage insurance (if your deposit is less than 20%) Weekly repayment $60,000 $11,490 $251,490 $1,700 $382 $400,000 $80,000 $15,990 $335,990 $3,000 $511 $500,000 $100,000 $20,490 $420,490 $3,700 $639 $600,000 $120,000 $24,990 $504,990 $4,400 $768 $700,000 $140,000 $29,490 $589,490 $8,200 $896 $800,000 $160,000 $33,990 $673,990 $9,300 $1,025 $900,000 $180,000 $38,490 $758,490 $10,500 $1,153 $1,000,000 $200,000 $43,490 $843,490 $11,746 $1,282 © Real Insurance $300,000 Assumptions Other upfront costs include: loan application fee — $500; conveyancing fees and disbursements — $1,500; building and pest inspection fees — $500; stamp duty calculated at NSW rates current on 1 December 2012. Weekly repayments calculated for a 25 year variable rate loan with an interest rate of 6.25% and repayments of both principal and interest. All estimates are given as a guide only and may vary substantially depending on your location, lender, mortgage insurer, conveyance and other factors. 11
  12. 12. A helping hand from the government Depending on your personal situation and your state, there are a whole range of government grants and tax incentives you may qualify for. But everyone’s situation is different, and the rules change frequently, so make sure you do your research and get advice if you need it. Here’s a brief summary of some of the most significant government grants which apply as at the date of this guide. State Grants and incentives First Home Owner Grant $7,000 for eligible first home buyers ACT NSW www.revenue.act.gov.au/home_buyer_assistance Stamp duty concessions If you are a first home buyer, pensioner or low income earner, you may be able to defer stamp duty or pay it at a lower rate First Home Owner Grant (New Homes) $15,000 for eligible first home owners buying or building a new home New Home Grant $5,000 for eligible buyers of new homes up to $650,000 or vacant land up to $450,000 First Home Owner Grant $12,000 (urban areas) or $25,000 (other areas) for eligible first home buyers up to $600,000 NT Where to find out more www.osr.nsw.gov.au/benefits/first_home/ www.osr.nsw.gov.au/benefits/first_home/general/ fhogs/ www.treasury.nt.gov.au/TaxesRoyaltiesAndGrants/ HomeOwnerIncentives/Pages/default.aspx Stamp duty concessions Up to $8,500 off stamp duty for eligible seniors, pensioners and carers Principal Place of Residence Rebate (PPPR) Up to $7,000 off stamp duty for eligible buyers of new homes First Home Owner Grant $7,000 for eligible first home buyers QLD First Home Owner Construction Grant $15,000 for eligible buyers or builders of new homes First Home Owners Grant Up to $15,000 for eligible first home buyers SA www.osr.qld.gov.au/first-home-owner-grant/ Housing Construction Grant Up to $8,500 for eligible buyers or builders of new homes http://revenuesa.sa.gov.au/IamaFHB.html http://revenuesa.sa.gov.au/IamaPropertyBuyer.html Off-the-plan Stamp Duty Concession Up to $21,330 off stamp duty for buyers of new apartments in particular districts First Home Owner Grant $7,000 for eligible first home buyers First Home Builder Boost (FHBB) Up to $8,000 for eligible first home builders (subject to legislation passing parliament) First Home Owner Grant $7,000 for eligible first home buyers VIC © Real Insurance TAS www.sro.tas.gov.au www.sro.vic.gov.au Stamp duty concessions Concessions for eligible pensioners, farmers, first home buyers and principal places of residence 12
  13. 13. A helping hand from the government... continued State WA Grants and incentives Where to find out more First Home Owner Grant $7,000 for eligible first home buyers up to $750,000 (or $1m for homes north of the 26th parallel) www.finance.wa.gov.au First Home Owner Concession Reduced transfer duty for eligible first home buyers Added extras When you’re working out how much you can spend, it’s easy to forget about all of the extra costs of buying a new home and moving in, so don’t be caught out. Here are some of the most important extra costs to consider. Legal fees Before you buy a home, you’ll need to arrange a conveyancer or solicitor to check that the seller is legally allowed to sell the property to you, and to arrange to transfer the ownership of the property to you. (For more about conveyancing, see “Bring in the lawyers” on page 21.) According to the Australian Institute of Conveyances, the cost of conveyancing ranges between $900 and $2,200, depending on the cost of the home and the complexity of the conveyance. Stamp duty Depending on your state or territory, you may need to pay stamp duty on the property transfer and the mortgage. The amount you’ll need to pay depends on your location and the price of the property. You can find out more using the online calculators listed below. If you’re a first home buyer, you can often get a good concession on stamp duty costs. Again, the website of your state revenue office is a good place to start. Your home lender will collect your mortgage stamp duty, if you need to pay it, on behalf of the government. These fees are usually either included in the home loan or charged to a bank account of your choice. Stamp duty calculators • ACT: www.revenue.act.gov.au/calculators • NSW: www.osr.nsw.gov.au/taxes/transfer_land/calculator/ • Northern Territory: www.treasury.nt.gov.au/TaxesRoyaltiesAndGrants/StampDuty/StampDutyCalculators/ Pages/default.aspx • Queensland: www.osr.qld.gov.au/calculators/index.shtml © Real Insurance • South Australia: www.revenuesa.sa.gov.au/stamps/SDcalcs/conveycalc.html • Tasmania: http://www.sro.tas.gov.au/domino/dtf/SROWebsite.nsf/v-all/4829E8B44ABC1076CA257933000340 73?OpenDocumentmenuitem=Property%20Transfer%20Duties • Victoria: www.sro.vic.gov.au/SRO/sronav.nsf/alltitle/Calculators?open • Western Australia: http://rol.osr.wa.gov.au/taxcal/ Australian Institute of Conveyances NSW Division, “The cost of buying a home”, www.aicnsw.com.au/for-consumers/cost-of-buying-a-home retrieved 4 December 2012. 13
  14. 14. Added extras... continued Other charges and costs Here are some other costs you might need to budget for: • Building and pest inspections (see “Look beneath the surface”, on page 22 for more). • Council rates. • Strata fees, if you’re moving into an apartment block. • Removalists. • Pest control. • Installing a new phone line, wireless internet and cable TV. • Deposit for utilities. • Cleaning for both old and new home (if you don’t do it yourself). • Redirecting mail. • Renovating and repairs. • Removing any hard rubbish and transporting the rubbish to the dump. • Gardening and landscaping costs. Choosing a loan With so many lenders and loans on the market, it’s easy to get confused about what’s best for you. So here’s a quick breakdown of the different types of financial institutions that offer loans, as well as a simple explanation of the kinds of home loans available and their features. Don’t be afraid to shop around and speak to different lenders. Ask them questions and be prepared to negotiate to get the best rate possible. You should also ask the lender to provide you with a Key Facts Sheet, which sets out information about their home loans to help you compare them with the competition. By law, a financial institution must give you a home loan Key Facts Sheet if you ask for one. Banks and non-bank lenders There are some differences between banks and building societies and credit unions, which mean their home loans are different too. Because banks are owned by shareholders, they need to be able to make a profit. That can affect the fees and interest they charge, although they may be willing to negotiate a discount on their headline rate. Because they are larger than credit unions, the big banks may also have more products to choose from, with a wider range of features. A credit union is a not-for-profit organisation that is owned by its members, so it may be able to charge a lower rate. But a credit union may also offer fewer ATMs and branches, as well as less access to online and telephone banking. Mortgage brokers © Real Insurance A mortgage broker can help you find a loan that suits your needs, choosing from a wide range of loans offered by banks and other financial institutions. Depending on your situation, they may also be able to arrange a special deal. But while a broker can save you time and money, their advice comes at a cost. So it’s important to understand the size of their fees and how they’re charged before committing. Interest rates Home loan interest rates have historically been linked to Australia’s official cash rate, set by the Reserve Bank of Australia (RBA). As a result, they typically rise or fall when the cash rate changes, although not necessarily by the same amount. That’s because financial institutions are increasingly sourcing funds from wholesale markets, often overseas. So the amount they pay for those funds may be completely unrelated to the rate set by the RBA. 14
  15. 15. Choosing a loan... continued In December 2011, ANZ made headlines by announcing that the bank would now follow a completely different timetable to the RBA for its interest rate decisions, underlining the growing importance of other influences. So far, no other banks have followed its lead, but there’s no doubt that the cash rate are less likely to automatically follow movements in the cash rate than at any time in the recent past. Fortunately, fierce competition in the home loan market helps to keep rates competitive. Meanwhile, the RBA continues to review the cash rate every month. Depending on the economic situation, it can move a long way in a short time, so it’s important to be prepared. In December 2012, the official cash rate was cut to 3%. Compare this to 1990, when it peaked at 17.5%, and you’ll see much it can change. Fixed interest rate One way a borrower can protect themselves against changing interest rates is to take out all or part of their home loan as a fixed rate loan. That means the interest rate will remain the same for the period selected — usually one to five years. So a rise in the interest rate won’t affect the borrower during that period. A fixed rate can be great for budgeting, since it allows the borrower to work out the exact amount they need to pay beforehand. But there can be a downside. With a fixed rate loan, there is no benefit if interest rates fall. And some fixed rate loans don’t allow extra repayments on the loan. Penalties may apply if the loan is paid off early. Variable interest rate A variable interest rate goes up and down with the cash rate, along with other changes that may affect your financial institution. The great thing about a variable interest rate is that it usually drops when the cash rate falls, reducing the interest payable. Variable rate loans also generally allow the borrower to pay back as much as they want, so they can get ahead of their loan and save on interest. If the loan also has a redraw facility, the borrower can use extra repayments to build up a buffer and keep a cash reserve on tap. Of course, if the cash rate goes up, the variable home loan interest rate is likely to increase too. That can make a big difference to monthly repayments. It may even be possible for the bank or building society to increase their rates without any increase in the cash rate, although that would put them at a large competitive disadvantage. Comparison rate With honeymoon rates, fees and other charges, it can be hard to decide which loan is best. That’s where the comparison rate comes in. The comparison rate takes the standard interest rate, fees and charges for a loan and wraps them up into a single percentage figure using a standardised calculation set by the government. Lenders are required by law to show the comparison rate when they advertise loans, making them much easier to compare. Other features Redraw facility: Some home loans include a redraw facility at no extra cost, which means a borrower can pay off more when they have cash available then redraw it later on if they need it. • Online access: Many financial institutions now give you 24 hour access to your home loan through your online bank, so you can check your balance, make extra repayments or even redraw money (if available on your loan), all from your home computer or mobile phone. • Early repayment fee: If a fixed rate loan is paid off early, the borrower may be charged an early repayment fee, to cover what the financial institution has lost on interest payments. • Offset accounts: Some home loans come with an offset facility which helps pay off the loan more quickly. It works by offsetting the balance in the savings account against the mortgage. That means the borrower effectively earns interest on their savings at the same rate as they pay on their home loan. © Real Insurance • Mortgage insurance Mortgage insurance helps to protect the lender if the borrower is unable to make their payments and ends up defaulting on their loan. Not to be confused with mortgage protection insurance, which is there to protect the borrower, mortgage insurance is designed to cover the lender’s risk. 15
  16. 16. Mortgage insurance... continued Mortgage insurance is compulsory if you borrow more than 80% of the value of your home — another good reason to make sure you have a healthy deposit before you buy. You may also need to take out mortgage insurance if you are self-employed or choose a “low doc” loan with less need to prove your income. Mortgage insurance is paid as a once-off insurance premium or fee at the beginning of your loan and is arranged by your lender during the borrowing process. Loan pitfalls When it comes to home loans, it can pay to be curious. Ask plenty of questions before signing, and take the time to read the fine print, in order to avoid any nasty surprises later on. Here are two common pitfalls to look out for: • Break fees. Sometimes charged if the home loan is paid off early, break fees can be a significant extra cost, especially on a fixed rate loan. • Honeymoon rates. A honeymoon rate is a special low interest rate that lasts for a fixed period before changing back to a higher, standard rate. While honeymoon rates can be great when dealing with all the other expenses of setting up a new house, they can catch you out when they switch back to the higher rate unless you’re prepared. So it is important to check the rate payable once the honeymoon’s over and factor it into the budget. Top 3 tips for paying off a loan faster 1. Increase your payments. Even a small extra repayment of $20 or $50 a week can make a big difference over time. But remember, penalties may be payable for some fixed rate loans if the loan is paid off early. 2. Pay weekly or every fortnight. Paying more often allows a borrower to effectively make an extra month’s worth of payments each year, without a noticeable impact on their budget. 3. Make a one-off payment. Putting a bonus, tax return or inheritance, on the mortgage can speed up the repayment time and save money on interest. Applying for a loan Now you’ve checked out a variety of home loans and lenders, and found one that best suits your needs, you can begin the application process. Preparation Before you apply, have the following documents handy: • Proof of identity (such as a birth certificate) and photo ID such as your driver’s licence or passport. • Proof of your income. That could be pay slips if you have an employer, or two years of business financials and tax returns if you’re self-employed. • A letter from Centrelink if you are receiving a pension or family allowance, or a letter from your real estate agent if you are receiving rental income. © Real Insurance • A record of what you owe, such as recent credit cards or personal loan statements. You don’t need to have found a place to buy before applying for a loan. Instead, you can have your loan pre-approved. By doing this, you’ll have a better idea of what your budget is which will help you while you’re house-hunting, as you won’t waste time looking at things outside of your price range. Then, once you find the place you want, you can move quickly before someone else snaps up the property you’ve had your eye on. 16
  17. 17. Doing your homework Ten essential questions to ask before you buy By asking these simple questions, you can avoid some of the most common pitfalls affecting homebuyers and make sure you’re getting value for money. 1. Why is the homeowner selling? (If the agent is vague about it, see if you can find out from a neighbour). 2. Who set the price? Sometimes, the owner may not be really in touch with the true market value of the home which means you might be able to negotiate a more realistic price. 3. Is the owner willing to negotiate? It’s worth asking, especially if you’re really keen on the house. 4. How long has the house been on the market? If it’s a long time, there may be problems with the house, so make sure you inspect it carefully (see “Look beneath the surface” on page 22 for more). 5. Are there any problems with this house? Ask straight out, and let the agent know that if you discover later in the process there are problems that they didn’t tell you about, you will look for another agent. 6. When does the owner need to move out? If they’re in a hurry, you may be able to bargain for a better price. 7. What do you think the property will sell for? See if there’s a gap between what the seller wants and what they are likely to get. 8. What other homes do you have around this price? This will help the agent realise that you are not overly attached to this property. 9. What is included with the property? See if you can negotiate to have features you like about the house, such as curtains, appliances, white goods and so on, as part of the deal. © Real Insurance 10. If I buy the home, will it be in the same condition when I get the keys? Make sure you visit the home again and check it one more time before you sign on the dotted line. 17
  18. 18. Going, going, gone! How to buy at auction Auctions can be exciting, daunting and overwhelming, all at the same time. By understanding the ins and outs, you can take advantage of the opportunities while avoiding the pitfalls. Buying a house at auction is an experience unlike any other. It can be an opportunity to snap up a bargain, but it can also be overwhelming, especially if you’re unprepared. The more you know about the process, the better. So here are some auction essentials, plus some handy tips to help you put your best foot forward on the big day. Most importantly, try going along to a few auctions to understand how they work. And if you find the idea of bidding yourself too daunting, remember that there are alternatives. You can hire a professional to bid for you, or simply make an offer before the auction date. Include a seven-day cooling off period to make sure you have time to get final bank approval before the contract is finalised. How auctions work Auctions are carefully regulated, with strict rules about who can bid and how. Check your state’s consumer affairs or fair trading department web site to find out the rules for your state. They’re designed to protect you and other bidders, so it’s a good idea to become familiar with them. Here’s an overview of the auction process in 10 steps: 1. Get ready. The house will be open for inspection about half an hour before the auction starts, so everyone can have a final look. 2. Get set. The auctioneer will go through the rules of the auction before it starts. 3. Go! The bidding starts, with hopeful buyers bidding in amounts (known as “rises” or “bidding advances”) set by the real estate agent during the auction. While bidding often begins in increments of $10,000 or $20,000 you can slow by offering an increase of $5,000 or less. Occasionally, if the bidding stalls, the agent may accept $1,000 and even $500 increments. 4. Vendor bids. During the auction, the agent might check with the seller to find out if the price is high enough to sell. If the seller isn’t satisfied with the last bid, the auctioneer can act on their behalf and place a bid, known as a “vendor bid”. The rules for vendor bids vary from state to state, so check them before the auction. 5. On market. If the bidding reaches the seller’s reserve price, the auctioneer will declare the property “on market”. That means it will be sold to the highest bidder. © Real Insurance 6. Passing in. If the property doesn’t reach the reserve and there are no more bids, then the property “passes in” unsold. At that point, the highest bidder gets the first chance to negotiate with the seller. Only if they cannot reach an agreement can the seller open negotiations to other possible buyers. 7. Sealing the deal. Once the property has been sold, the buyer and the seller sign the contract of sale, making it legally binding. The seller then pays a deposit, which will be held in trust until settlement. 18
  19. 19. Getting ready to bid You can only bid in an auction if you are in a position to make a deposit on the day. The size of the deposit is set before the auction, usually at 5%–10% of the purchase price. One way of making sure you don’t go over your limit is to make out a cheque for 5% or 10% (whatever the deposit amount is) of your maximum price. This way you can’t bid over your limit. If you think you’ll find the auction too daunting, there is the option of using a professional purchasing agent. You could also ask a friend or family member to bid for you. But you need to check with the agent or auctioneer to understand their requirements. It’s important to remember that if you appoint a bidder to represent you, and their bid is successful, then it’s as binding as a bid you made yourself. Five tips for successful auctions 1. Make an offer. When you find a house you want to buy, consider getting in early by making an offer before the auction date. 2. Read the fine print. Get your solicitor to check the contract thoroughly (together with the strata report, if you’re buying an apartment) and explain anything you don’t understand. If you’re not comfortable about the terms and conditions of the sale contract, talk to the vendor before the auction to see if they can change them. Remember, once you make that winning bid, you’re locked in, so you need to take care of any concerns before bidding starts. 3. Set a limit. Before you go to the auction, put a firm limit on how much you are prepared to bid. Auctions can be very emotional and competitive, so it’s easy to overbid in the heat of the moment. If you’re buying the property with other people, decide together what your limit is and hold each other to it. Keep in mind that the winning bid is unlikely to be a round figure (like $500,000), so leave some wiggle room for those smaller, last minute bids ($510,000, for example). 4. Be assertive. Don’t be afraid to ask questions of the auctioneer, and be ready to offer figures smaller or bigger, than the price being called for if it suits your strategy. 5. Be ready to negotiate. If the property passes in, the highest bidder wins the first chance to negotiate a price with the seller, so it may make sense to end on a high note even if the property isn’t yet on the market. Negotiating after an auction Sometimes, the property doesn’t reach the reserve price — that is, the minimum amount that the seller asks for. In this case, you might be able to negotiate a sale once the auction is over. If the owner really wants to sell the home they may be more likely to accept a lower price, so you could end up getting a good deal. However, don’t be pushed into making an offer you’re not comfortable with, and make sure there is a seven-day cooling off period. Your auction checklist To do list Check the auction rules in your state. © Real Insurance o o o o o o o Your notes Go to other auctions. Arrange a building inspection. Arrange a pest inspection. Ask your solicitor to check the contract. Be ready to pay the deposit. Register as a bidder (if required in your State). 19
  20. 20. Your auction checklist... continued To do list o Do a final inspection. Set your limit. Be ready to pay the deposit and sign the contract. Have the cheque and identification with you. © Real Insurance o o Your notes 20
  21. 21. Bring in the lawyers Working with your legal team Your conveyancer or solicitor is there to support you and make the process of buying a new home easy and stress free. You can help, by understanding their role and asking the key questions they’re there to answer. What does a conveyancer do? A conveyancer or conveyancing solicitor makes sure your property purchase is legal and that your rights are looked after during the sale. Their job is to prepare the legal documents to transfer the property to your name and look through the property contract and explain it to you. A conveyancer may also: • Search for strata reports (if you’re buying an apartment). • Organise the exchange of contracts for sale. • Negotiate with the seller’s lawyer for you. • Order building or pest inspections. • Give you advice about the contract. • Help you through the settlement process. Choosing a conveyancer As for any professional service, it’s always good to shop around, rather than going with the first one you find. Always ask questions, even if someone you trust has recommended their services to you. Look for a conveyancer who speaks to you in plain English, takes the time to explain the process to you — and clearly outlines their fee structure and how much you’ll need to pay. Some questions to ask your conveyancer 1. Are you a member of the Australian Institute of Conveyancers? 2. Do you charge a fixed fee or an hourly rate? © Real Insurance 3. What’s the maximum price I’ll have to pay? 4. What government fees and charges will I need to pay? 5. How long do you think settlement (the process of exchanging funds and the property) will take? 6. Has the council approved all the alterations to this house? 7. How will you keep in contact with me through the process (by email or telephone)? 21
  22. 22. Look beneath the surface Building and pest inspections Even new houses and apartments can have hidden flaws that could end up costing you thousands down the track. So it’s worth investing in an inspection before you buy. It’s unlikely you’ll be able to confirm the quality of a home just by looking at it in an open inspection. For example, you can’t check whether the roof has been properly weather sealed, and cracks that indicate structural problems may have been cleverly covered up. That’s why you should always get a building inspection and a pest inspection before you buy. If you don’t find any faults or pests, that’s great — but even if you do, you may be able to use this information to negotiate a better price. You’ll also know how much you need to spend to fix any problems. What does an inspector do? The building inspector should check the inside and outside of the house, as well as checking the roof, under the floors and throughout the yard, including driveways and sheds. The inspection also covers wiring and plumbing. A pest inspector looks for evidence of pests that can destroy timber, such as termites or white ants, borers and fungal decay. According to the Australian Institute of Conveyances pest and building inspections typically cost between $400 and $800 — a good investment when you consider that repairing termite damage alone can run into thousands of dollars.* Some questions to ask your building inspector 1. What are your qualifications? 2. Is your business a member of an industry association? 3. Are your inspections guaranteed, and if so, how long for? 4. What will this inspection cover, and is it carried out according to the Australian standard (AS 4349.1)? 5. Can I see a sample of one of your reports? © Real Insurance Some questions to ask your pest inspector 1. How long has the business been operating? 2. Are you a member of an industry association? 3. Can I see proof of your professional indemnity and public liability insurance? * Australian Institute of Conveyances NSW Division, “The cost of buying a home”, www.aicnsw.com.au/for-consumers/cost-of-buying-a-home retrieved 4 December 2012. 22
  23. 23. Protecting your home Getting the right insurance After your family and your health, your home and belongings are some of the most important assets you have. So it’s important to protect them against unpleasant surprises. After spending so much time, effort and money buying a home, you want to keep it safe. Most lenders require you to take out home insurance to safeguard the property that secures your loan. But whether your lender requires it or not, home and contents insurance is valuable protection for the things you value most. Home and contents insurance helps to protect your new home against fires, floods, storms and other disasters. It also covers the belongings inside your home against burglary and damage in an accident or natural disaster. Without insurance, something as simple as a fallen tree or a flooded laundry could end up costing you thousands. That’s why good quality home and contents cover is well worth considering. Getting the right level of cover To get the right level of cover, a home owner needs to start by working out what it would cost to rebuild their home if it was totally destroyed. It’s important to include the costs of clearing the site, the average price of building a new, similar home and extra costs, such as accommodation while the house is being rebuilt. Home owners taking out contents insurance also need to calculate the replacement value of their belongings. One approach is to go through the house room by room, recording the price of everything that would need to be replaced if the house was destroyed — from crockery to cutlery, linen, mirrors, children’s toys, furnishings, even clothes. It may be worth remembering that it could cost more to replace belongings at today’s prices than they originally cost to buy. Consider taking photos of precious items like jewellery and keeping the details in a safe place outside your home. Some things to look for Not all home and contents cover is the same, so it’s important to check the policy to make sure it meets your needs and that you’re getting value for money. Here are some features to look out for: • New for old replacement for most contents. © Real Insurance • A choice of excess, so you can adjust your excess and your premiums. • One excess for home and another for contents. • The option of making monthly payments at no or little extra charge. 23
  24. 24. Protecting the income that pays your mortgage This could also be a good time to think about protecting the income that pays for the mortgage. Income Protection insurance helps to give home owners a regular monthly income if they are temporarily unable to work because of illness or injury. That makes it possible for them to take care of bills and mortgage payments while they recover, without the stress of worrying about money. To find out more, go to www.realinsurance.com.au © Real Insurance Real Insurance is the trading name of The Hollard Insurance Company Pty Ltd, the issuer of Real Insurance’s general insurance. You should consider the Product Disclosure Statement available at www.realinsurance.com.au when deciding if a product is right for you. 24
  25. 25. Home sweet home! Moving without hassle Congratulations on your new home! Here are some tips to help move in without the hassle. Moving doesn’t have to be stressful. Here are some ideas to help make your moving day worry-free: • Before you move, make sure you pre-book your removalist and get a formal quote. • Check the weather in the lead up to moving day, and if it’s going to rain consider changing the day, or at least wrap items in plastic that could be damaged by getting wet. • Many people move on a weekend, so it’s often the busiest time for removalists, which means they may charge you more. And with traffic often an issue on weekends, moving on a weekday might be your best bet. • Why not organise a garage sale for all your unwanted items, or donate them to charity before you move? If you decide on a garage sale, hold it a few weeks before you start packing. • Pets can get in the way of removalists and can also get distressed and unsettled during a move, so consider putting them in boarding or taking them around to family or friends on the day. Your moving checklist To do list o o o o o o o o o o o o Utilities, phone and internet cancelled at old home. Internet connected. Telephone line connected. Cable TV connected Gas/electricity connected. Contents insurance arranged. Removalist booked. Cleaner booked. © Real Insurance o Your notes Non-essential items packed ahead of moving day. Garage sale organised and advertised. Final check of the old house. Washing machine drained. Fridge emptied. 25
  26. 26. Your moving checklist... continued To do list Your notes Change of address for: o o o o o o o o o o o o RTA. Insurance. Health fund. Medicare. Schools Mobile phone provider. Internet provider. Doctor. Dentist. Employer. Roadside assistance. Other tasks Five tips for choosing a removalist 1. Don’t rely just on the company’s advertising — ask friends, colleagues and family for recommendations and warnings! Check the Australian Furniture Removers Association for a list of qualified companies. Get a number of quotes and compare them. © Real Insurance 2. A small removalist may over commit to a number of jobs and cancel on you at the last minute, so often a bigger removalist company with lots of trucks may be your best bet. 3. Book well ahead to make sure the company you choose is available on the day you want to move. 4. Don’t ever choose on price alone. A cheap but inexperienced removalist may damage your property, or take a long time to move your property and end up costing your more. Many removalists will visit you to give you a quote, based on how much you have to move. Get a written contract so all the costs are included in the quote. 5. There’s no law requiring removalists to have insurance, and generally, because you do the packing, removalists won’t take responsibility for your possessions if they get damaged in transit. So check that your contents insurance covers moving. 26
  27. 27. Five ways to make packing and unpacking easier 1. Start packing as early as possible — at least six weeks before you move — beginning with non-essential items. 2. Label each box so you can remember what you’ve put in them, marking them ‘fragile’ if they have breakable items in them. 3. Count the number of boxes you have to help avoid things getting lost. 4. Wrap liquids up well in plastic bags, and tape bolts, nuts and screws to disassembled furniture so you don’t lose them. 5. Leave clothing in cupboard drawers to avoid unnecessary packing. © Real Insurance Well done! You’ve arrived. Now sit back and enjoy your new home. 27

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