The 6 steps between approval & property settlement
Finding and purchasing a property is a complicated and emotional decision. Many buyers find their dream home, but realise they must commit immediately, or lose the opportunity. However, many don’t understand, or are daunted by, the home loan process.
If you are seeking to purchase a property, do you know what is needed to secure the required finance, or have an idea of the long-term commitment of making such an important financial decision? Here are six steps that will help you through the home loan process, and allow you to minimise stress and fast track the mortgage application with a little preparation and organisation.
Lender’s offer letter
Once the lender has approved your loan application, they will provide you with a loan offer letter. This is an important legal document that sets out the conditions, including the interest rates and fees, which will apply to your loan.
It is important that you read this letter carefully and ensure that you understand and agree with its contents. If there is anything that you do not understand or agree with in the document, you should seek advice from your mortgage broker, solicitor, or the lender.
Lender’s loan terms and conditions
Alongside the offer letter, the lender will provide you with a copy of the detailed loan terms and conditions, which can be either in the form of a contract or a booklet. This is another important legal document, as it sets out the terms, conditions and obligations on both you and the lender.
Again, it is important that you read this document and seek advice from your mortgage broker, solicitor, or the lender if you are unclear about any of the terms and conditions.
Accepting the loan offer
When you are content to proceed with the loan, and are confident that you understand and agree to the loan conditions, you should arrange to sign and return the documents to your mortgage broker or the lender as appropriate.
Remember that you will be entering into a legally binding contract, so ensure that advice is sought if there is anything that is not understood.
Arranging a mortgage over your property
Once you have agreed to and signed the loan offer, the lender will start to make arrangements to take a mortgage over your property. At this point, if you have not already done so, it is ideal to engage a solicitor or licensed conveyancer to assist you through the process.
A mortgage is a legal mechanism which provides a lender with a number of rights over your property (security) in the event you fail to fulfil obligations under the loan contract. As such, the impact of a mortgage is that you cannot sell or transfer ownership of your property, until the lender has received all of the money it is entitled to under the loan contract.
If you fail to fulfil all your obligations under the loan contract, particularly in regards to making scheduled loan repayments, an extensive process will apply which will include as the final step, the exercise of the lender’s right to sell your property to recover the remaining amount under the loan contract. As part of the mortgage process, the lender will undertake numerous procedures such as title searches to ensure that you are, or entitled to become, the rightful owner of the property. These procedures are most appropriately handled between the lender and your solicitor or licensed conveyancer.
The last step prior to settlement is arrangement of a settlement date. While this may sound straight forward, it can become quite complicated. For example, if you are refinancing a property that you currently own, it will involve coordination between the outgoing lender and the incoming lender. If you are purchasing property, it will involve coordination between the seller’s solicitor and their lender (if applicable), along with your solicitor and your lender.
Your solicitor, mortgage broker and lender will arrange with you prior to settlement what money will need to come in (for example your deposit) and what money will go out, such as payments to the seller, stamp duty, conveyancing fees, and other costs.
Settlement is a complicated process that involves coordination between numerous interested parties such as real estate agents, solicitors, mortgage brokers, lenders, and the land titles office. Your solicitor and mortgage broker are invaluable in managing this process on your behalf.
Settlement for a new purchase involves the transfer of money from the buyer to the seller, and the transfer of the property title from the seller to the buyer. At the same time, various other costs associated with the title transfer are settled, such as stamp duty, rates adjustments and solicitor’s fees.
Settlement for a refinance involves the outgoing lender releasing their mortgage and receiving money to discharge the current loan, while the incoming lender takes out a new mortgage, creates a new loan and pays money out to the outgoing lender.
Your solicitor/conveyancer will advise you once settlement has been completed. Usually your lender will contact you confirming the transaction details within a few days. At this point it is important to follow up anything that you think may not be correct as soon as possible.
Your new loan account should be available within one day through appropriate access channels such as the internet, telephone banking system, or ATMs, so it is a good idea to confirm that everything is working as expected. From this moment onwards, your new loan account is up and running.
Hey, thanks for the info. Now what?
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Thanks so much!