Home loans explained
The confusing settlement process, let's settle it
6 min read
If you’re curious about settlement, you’re probably getting to the pointy end of buying a home. Which is marvellous news. Or, you’re just a very thorough researcher. Either way, good for you.
The magical and muddling process whereby, you do as you're told and wait patiently for weeks, without any indication of what’s happening, until something does happen (wizardry? Unicorns?) and you’re told you’re legally a home owner.
The road to buying a home is a confusing one. And the settlement process – the final stage in the home loan process – is one that most people (even people who have bought a home before) never really understand. Most likely, because brokers want you to think it’s just so hard and so confusing, you need them to do it all for you. Whoops, did I just say that? Sure did.
In a nutshell, settlement is when the seller receives their payment for the property, and when your home loan begins. Or if you’re refinancing, it’s when your existing lender gets their money back, and when your new loan begins.
Let’s go through the settlement process for when you buy a home, step, by step. In a way that is actually makes sense.
Get approval in principle to borrow the amount you think you need to buy your home. ‘In principle’ means you’ve been approved to buy a home for up to a certain amount of money, but once you have bought the home, you’ll need final approval for that specific property.
Make an offer on your new home (for the amount you were approved for). Which is accepted, of course. Yippee!
Sign the contract for your new home to seal the deal, and pay your deposit to the agent. This is when you’ll confirm your final settlement date too, which is the date you get the keys to your new home. This day is usually 30 – 60 days from signing contract.
Post photo on Facebook of you in front of said home (with SOLD sticker) stating your excellent news, asserting financial security and rousing envy.
You need to insure your property to provide your lender a level of protection (and you, too!) in case something happens to your home. And as soon as you sign the purchase contract, you’re responsible. If your new home is an apartment, you may just need a copy from strata. You’ll need to provide your lender the insurance details, with your other loan documents a little bit later.
Get final approval for your home loan, by supplying the purchase contract for your new home to your lender. They’ll check the final loan amount, and confirm they’re happy to lend you money for that particular property.
You’ll most likely need do one last ID check. These days this is done through ZipID, where someone arranges to meet with you, take your photo and a copy of your photo ID to send to your lender. Or Australia Post do it too.
You’ll receive your home loan contract, along with your other settlement documents. The other documents are things like fact sheets to explain details about your home loan, direct debit forms so you can specify how you’re making your repayments, and things like that.
Contract a conveyancer to legally transfer the property to your name. A solicitor can do this too. They will be your true hero in the process, dealing with your lender and the seller’s own conveyancer, to make sure your rights are being looked after and you meet all your legal obligations when the land title is transferred to you.
Make a cup of tea and exhale deeply. You’re about to read a loan documents novel, with zero character development (and characters, generally) or moral to the story. But it’s important you’ve read everything and feel good about it. Your conveyancer can help with questions you have along the way.
Sign your home loan contract and return all the relevant forms to your lender. Your conveyancer will assist with this too if you need help.
The seller must hand over the property in the same condition as when it was sold. Have a nosey and make sure everything looks and works as it did. If not, speak to your conveyancer.
Arrange gas, electricity, internet and subscriptions to be redirected/set up in your new home. Think about home and content insurance for when you move in, too.
Your conveyancer will advise local council, water company, strata (if applicable) and Land Tax department of the change in ownership of the property. It’s becoming real.
Start compiling invite list for housewarming.
This is when your lender will ‘draw down’ on your loan. This means your home loan officially begins, as they’ll debit the amount paid to the seller from your loan account. The money for stamp duty and other fees and charges will also be transferred now too.
Receive a phone call from your conveyancer to let you know that settlement has taken place. Feel a little underwhelmed, but know that something important just happened.
Collect the keys to your new home from real estate agent. Hip-hip hooray!
Drink the expensive champagne your friends bought you.
When finished, drink the cheap bottle the real estate agent gave to you.
And that’s it. No unicorns, unfortunately.