Buying your first home is both exciting and daunting. To try and make the process a little less stressful, we have put together some things you should know before you start looking, and once you get into the process.
The first thing to know is when you sign up to buy a house, the document you sign is a contract. This is a legally binding document that imposes obligations on you. If you do not fulfil those obligations, there can be serious consequences. Therefore we recommend you speak to your lawyer before signing on the line.
Getting your Team Together
The main people you need on your side during the purchase process is a lawyer and a banker, or mortgage broker. Choose wisely! You will also have contact with the estate agent who will be representing the seller during any open homes, negotiations or auction.
You may also need to consult with or use a:
- Purchasers Agent
Someone who helps you find the right house. Note they will usually only recommend homes for sale within their franchise group, and will be remunerated from the selling agent’s commission if you are successful.
If you are unsure of what a house is worth then sometimes the local government ratings valuation can be indicative, or online firms such as QV can provide a computer generated estimate of value. A valuer can provide a more in-depth onsite valuation. However local real estate agents also have a good eye for value in an active market if you need an informal opinion..
- Structural Engineer/Builder
A structural engineer might be required to assess whether earthquake repairs have been performed correctly, or to check any other structural aspects of the property.
If you are buying the house to rent, then you will need to prepare a tax return for the income, and possibly financial statements if purchasing within a family trust or company.
What Can I Afford?
First home buyers are often financially stretched to get onto the property ladder. There are a number of funding options apart from savings:
- Housing New Zealand Home Start Grant
- KiwiSaver Withdrawal
- Family loans
Don’t forget to budget for other associated costs – insurance, rates, legal fees, bank fees, and fees for any other professionals you engage.
Know some Jargon
- Deposit – a small portion of the purchase price (usually 10%) paid when you sign the Contract or when you have an Unconditional Contract.
- Confirmation Date – the date you have to confirm satisfaction of the purchaser’s terms of the Contract, i.e. confirming you have checked the property and wish to proceed with the purchase.
- Settlement Date – when you pay the balance of the purchase price and take possession of the property.
- Unconditional Contract – the status of the Contract once you have confirmed satisfaction of the purchaser’s terms of the Contract. You are now legally obliged to complete the purchase.
- Agreement for Sale and Purchase/Contract – a document that records the parties buying and selling the property, details of the property, and the terms and conditions of the transaction.
Finding a Property
- Online – a lot of private sellers, and real estate agents, list properties on websites like Trade Me and www.realestate.co.nz.
- Auctions – where all interested buyers bid openly for a property. Anyone can attend an auction and it may help you work out what is available in your budget range.
- House and Land Package –a building company who purchases the land and then builds a home on it. You buy the land and home in a package from the building company.
- Open Homes/Private Viewings – a real estate agent will run open homes and invite people to view the property. If the property is being sold privately, i.e. not by a real estate agent, then you would need to arrange a private viewing of the property. Viewing the property is an important step in the process of buying a house (see below).
- Real Estate Agent – an agent is employed by a vendor to find a purchaser. You can enlist the help of a purchaser’s agent who will find a property for you.
Who should see the contract before I sign?
- If there is a Real Estate Agent involved, they will prepare the Contract. You should have your lawyer review the Contract before you sign it. If you cannot arrange for your lawyer to review it, you should add a condition requiring your lawyer’s approval of the form of the Contract (see below).
- No Real Estate Agent/Private Sale – the sellers lawyer will prepare the Agreement for Sale and Purchase
When do I apply for funds?
- Housing NZ Home Start Grant – it takes four weeks to process an application and pay funds out. You can apply for pre-approval before you find a home to buy. If pre-approved, Housing NZ will require two weeks to be able to pay the funds out. The Grant is only available for payment of the balance of the purchase price, except if you are building/buying a house and land package. For a new home, there are different rules that apply. Consult with your lawyer about your particular situation.
- KiwiSaver withdrawal – most providers will let you withdraw funds to pay your deposit. Alternatively you can withdraw funds to pay the balance of the purchase price on settlement date. You should apply to your provider as soon as you sign your contract, and stipulate when you would like to withdrawal the funds. Most providers require 10 working days to process your application. Your lawyer can help you with this process.
What conditions should I have in the contract?
- Sunset clause (a final date the dwelling will be completed when purchasing a house and land package)
- Lawyer’s approval of the contract (if you cannot get the contract to a lawyer before signing)
- (Obtaining) finance – this includes arranging a mortgage, and getting your cash contribution together. Your cash contribution can include your KiwiSaver withdrawal, and the Home Start Grant.
- (A satisfactory) Land Information Memorandum (LIM) – provides information the Council has about the property, eg: building consents, zoning, rates.
- Building Report – a report completed by a builder/inspector as to the condition and state of the house.
- Insurance – it is often easier to stay with the current insurer of the property. You should ensure you receive the current insurance company details and policy number from the vendor.
- Title – information about the land, and details of any rights you have over other people’s land or rights you give other people over your land, eg: easements.
- EQC assignment – are there any claims for the property? If so, what is the status of those claims? Have you received a scope of works or other information about the claims and damage to the property? You may need to include a condition in the Contract about the claims. Speak to your lawyer about this.
I have an unconditional contract, now what?
- Mortgage structure – you will need to finalise how you wish your lending to be structured with the bank (if you haven’t already) so the loan documents can be prepared and sent to your lawyer.
- Meet with your lawyer – to sign your loan documents, and any other paperwork necessary to complete settlement. Your lawyer will run through the process on settlement date.
- Pre-settlement inspection – this is important to ensure the property looks the same as it did when you signed up to buy it (this is where it is important to attend open homes/private viewings) and also that there is no new damage to the property, eg: a broken window. You should check the chattels listed in the Contract have not been removed.
- KiwiSaver Withdrawal – if you didn’t need the withdrawal for your deposit, you should send your application off now. Your lawyer can help you with this.
- Deposit – this may need to be paid now (if it hasn’t already). Check who it needs to be paid to, i.e. the real estate agent, or your lawyer.
- Start packing!
This guide is not an exhaustive document and if you have any question please do not hesitate to contact any of our property team.