What is the First Home Owner Grant?

The First Home Owner Grant (FHOG) scheme was established to offset the effect of the GST on home ownership by providing a grant to first homeowners.

The FHOG scheme came into effect on 1 July 2000 and is an on-going scheme with no end date yet specified.

The FHOG is not means-tested nor is it restricted by the purchase price of the property. A contract to purchase an existing home or to build a new home must be signed on or after 1 July 2000.

Am I eligible for the first homeowners grant?

Generally speaking, you will be eligible for the first homeowners grant if neither you nor your spouse have owned a home nor claimed the grant previously. For more information on your eligibility for the first homeowners grant visit www.firsthome.gov.au
 
The idea of purchasing of your first real estate property can be filled with a mixture of feelings - excitement, nervousness and anticipation - there is a lot of information to process and considerations to be made. To assist you in the process, Key Choice Home Loans has put together the attached information to help you on your way.

First home buyer package questions and answers

I want to buy a home – what do I need to know?

You may be making the biggest financial decision made to date and feel overwhelmed by the process involved. As a starting point – reading this guide may be of great benefit to you.
Firstly, the cost of acquiring a property is always more than the purchase price. You need to allow for Stamp Duties, Lodgement Fees, Finance Establishment Costs and Conveyancing (Legal) Costs including adjustments. These can add an extra 4% to 7% to the purchase price.

Some of these costs are outlined below:

STAMP DUTY
This cost is payable on most Land and Mortgage transactions. Stamp Duty is
determined by the size of the transaction and paid to the relevant State Revenue Office (“SRO”). All States and Territories have different methods of calculating this duty but generally it is on a sliding scale (the more you pay the greater the duty). Most states also charge Stamp Duty on any mortgage against the property. In Victoria, Stamp Duty on Mortgages was abolished on 1 July 2004; however Stamp Duty on Property Transactions is still payable.

REGISTRATION FEES
This is a cost incurred by lodging Mortgage and Transfer of Land Documents
and paid to the relative states’ Land Titles Office (“LTO”). Each LTO is responsible for maintaining accurate property records including ownership and mortgages binded to each property. Lodgement fees for Mortgages are a fixed charge and relatively minimal.

FINANCE ESTABLISHMENT COSTS
This will depend on the lender you seek finance through but may consist of a bank application fee, bank legal fees, and a valuation fee. It is reasonable to allow for approximately $300 to $800 for this charge. If your lender requires you to take mortgage insurance this may escalate this cost quite substantially (see Mortgage Insurance).

Conveyancing and Adjustments
These are costs incurred in relation to the legal transfer of property ownership. You will be liable for a portion of outstanding or prepaid expenses of the property – your Conveyancing representative will work these out with the Vendor’s Conveyancing representative. In addition, you will need to allow for Conveyancing fees to your appointed representative. These fees will vary depending on their qualifications and experience.

What are First Home Owner Grants?

If you have never owned property you may be eligible for a Federal Government Grant. In Victoria an additional Home Boost is applicable providing the transaction does not exceed $500,000. The total grants available are shown on the website – if you are unsure if you are eligible speak to your KCHL Account Manager or check your eligibility with the State Revenue Office. www.sro.vic.gov.au

What is Conveyancing?

Conveyancing is the legal process to transfer property from one party to another. Most purchasers appoint a solicitor or representative to handle Conveyancing on their behalf – a very small percentage may engage in a “self – conveyance” however, unless you have conveyancing experience, be aware that the process is more difficult than it may appear. Knowledge of all legal aspects is a must to ensure a timely and cost effective settlement. As Conveyancing involves many legal aspects you may wish to use a qualified lawyer rather than a conveyancer to provide peace of mind when things do not happen to plan.

What should I know about a Contract of Sale and a Section 32?

The Contract of Sale highlights the particulars of the contract (including purchase price, deposit amount, settlement date and any conditions) whilst the Section 32 explains the details of the property including outgoing expenses, restrictions, zoning, caveats and other matters. As purchasing a home is a major financial transaction, you may wish to consider getting a solicitor to review the contract and section 32 on your behalf. KCHL Group will provide a comprehensive review and summary of anything you need to be aware of in relation to purchasing a particular property. Remember if you sign a Contract of Sale unconditionally – you are locked into the Contract.

What is the difference between Unconditional and Conditional Contracts of Sale?

An Unconditional Contract of Sale is one which is legally binding with no “out” clauses. Both the vendor and purchaser have entered into a formal agreement to sell / buy the property and are bound by the terms of the contract. Generally, a deposit will have been paid by the purchaser unless other arrangements have been mutually agreed upon. A Conditional Contract of Sale is one where the Vendor has committed to selling, and the Purchaser has committed to buying upon certain conditions being met. Some common conditions are:

• Satisfactory Building Inspection
• Finance Approval
• Satisfactory Solicitor review of the Contact

Ensure that the Real Estate Agent has specified these conditions on the contract prior to signing.

What is the “Cooling off Period”?

In accordance with section 31 of the Sale of Land Act (1962), you may terminate the contract within three (3) business days of signing, provided none of the following exceptions apply:

• The property was purchased at or within three (3) business days before or after a publicly advertised auction;
• The property is used mainly for industrial or commercial purposes;
• The purchaser received independent advice from a Solicitor before signing the Contract;
• The property is more than 20 hectares in size and is used mainly for farming;
• The purchaser has signed a similar contract for the same property; and
• The purchaser is an estate agent or a corporate body.

To terminate the contract within the cooling off period, you must personally deliver to the Vendor, the Vendors’ Solicitor, or the Vendors’ Estate Agent written notice regarding the termination of your contract. The Vendor has the right to retain either $100 or 0.2% of the contract price paid (whichever is more) should the purchaser terminate from the contract. Of course prior to signing any contract ensure the clause regarding the “Cooling off Period” is attached.

Should I insure the property once my offer has been accepted?

Once you purchase a property, you are generally purchasing the land and improvements. However you cannot assume the vendor has insurance on the building – you may wish to consider insuring the property on the day you sign the contract and it is unconditional.

What is Mortgage Insurance? Does it protect me?

Mortgage Insurance covers a lender from incurring any loss as a result of your inability to repay a mortgage. A lender will generally require you to pay a once off premium to their Mortgage Insurer where you borrow more than 80% of the purchase price. IT DOES NOT PROVIDE YOU (the Borrower) WITH COVER. It should not be confused with Mortgage Protection Insurance, which is offered to borrowers. The premium will depend on the size of your transaction and what percentage of the property you borrow, a greater transaction and percentage will incur a higher insurance premium.

I have bought and the Lender wants an Independent Valuation – should I worry?

If you purchased in a public market and your offer was reasonable then you needn’t worry. A Contract of Sale is arguably the best piece of evidence a valuer can use to confirm the price of a property. The lender most likely seeks to ensure the property is suitable for residential purpose (e.g. if a business was being run out of it this may be a concern), and also to ensure it is fit for residential living (a house without a roof might be a concern). Some lenders may rely on the contract of sale and not bother with a valuation.

Do I need to attend the Settlement?

Generally there is no need to attend settlement. Your lender will attend to provide funding details to your Solicitor, and collect the Title Deed and Transfer of Land from the Vendor. Your Solicitor will attend to pay the outstanding balance owed to the vendor and handover any necessary legal documents to the Vendor’s Solicitor and Lender. The Vendor’s Solicitor will attend to Hand over the Title Deed and Transfer of Land to the Lender.

When can I collect Keys?

Once the vendor solicitor confirms with the Real Estate Agent the property has settled, you can collect the keys to the property.

Will I need to provide my Lender with a Certificate of Currency (Building Insurance?)

Generally this will be required – the insurance must be in the name of the mortgagor(s) – otherwise known as the titleholder(s) of the property. The bank’s independent valuer will recommend the amount of cover required. Some lenders do not require you to provide them with evidence of insurance – but note that in the event the building is damaged and upon sale you are unable to payout your mortgage, you are still liable for the remaining debt.

How much can I borrow?

There are several things a financier (Bank or a Non Bank Lender) will be assessing. A financier can generally advance up to 90% of the value of the property with Mortgage Insurance. Some lenders will finance the Mortgage Insurance in addition to the 90% lending amount. Your borrowing level will be contingent upon on a number of factors including:

• Your Income & Employment Status (Serviceability) - Time in employment and current earnings, will these earnings cover your new loan repayment and other commitments?);
• Your Contribution to the Purchase (Equity) – The financier and the mortgage insurer (if applicable) will want to ensure you are contributing your own genuine deposit; and
• Your Credit History (particularly the last 3 to 5 years) – numerous credit enquiries or lodged credit defaults may affect your ability to borrow.

In the event you borrow more than 80% the lender will most likely require you to obtain mortgage insurance approval (refer to the next question).

How do I get Mortgage Insurance Approval?

The lender will take care of this on your behalf. However, you will need to provide a Six (6) Month genuine savings history evidencing 5% of the purchase price in a bank account or as alternative savings. Any abnormal savings patters (e.g. large deposits in addition to your salary) also need to be tracked. Generally sale of assets other than shares, gifted funds and inheritances are not an acceptable form of savings. The mortgage insurer may employ its own loan servicing model – and your borrowing capacity may be reduced. They will also rarely ignore credit defaults in the last three years.

How much Deposit will I need to pay and when?

Generally a 10% deposit of the purchase price is required at time of signing a contract. This is in the form of a personal cheque generally made to a Trust Account. The money is held in trust and released to the vendor at or before settlement. At an Auction, a 10% deposit is required on the day if you are successful. However, prior to an auction or purchase you may be able to negotiate with the agent / vendor the timing of the payment and amount of the deposit.

Most people have a minimum of 5% deposit, (you will still need money for stamp duty and other administration costs). Borrowing 95% now will mean a greater amount to pay back, but it will get you into your own home sooner.

If your deposit is less than 20% you may be required to pay Lender's Mortgage Insurance. (This is insurance for the lender to protect itself from default by the borrower.) However, you may be able to avoid Lender's Mortgage Insurance by using Family Guarantee. This allows a family member to use the equity of their house or other assets (e.g. savings) as security for your loan.

Family Guarantee

Just tell them you are moving back in and your parents will be sure to help with a Family Guarantee. If you're keen to get into your own place, just ask about a Family Guarantee. As its name suggests, it allows a family member like a parent to use the equity in their home as security on your new home loan. This means you may be able to avoid paying Lender's Mortgage Insurance. So you can be in your new home sooner.

Features even your parents will approve of:
• Family members may be able to guarantee the home loan up to a nominated limit.
• Family Guarantee may be used to secure a range of home loans – so you can still get the loan that best suits you.

 Family Guarantee must be secured by either a 1st Registered Residential Mortgage. If you want to get into your own place sooner, ask your parents to help with a Family Guarantee.

What is a Deposit Bond (Guarantee) – can I use one?

This is targeted for individuals who have their equity tied up in property and cannot provide a cash deposit. As a First Home Buyer you are unlikely to have equity in property but if you do speak to your KCHL Account Manager about your options.

Ten legal tips on the process of buying property in Victoria

1. ‘Caveat Emptor’ - Let the buyer beware!
Looking for a property is an exciting and sometimes tense time, and the decision to buy is often one of the biggest financial commitments you will make in your life. So it is important to know where you stand legally. Every seller is required by law to provide a Vendor’s Statement to potential buyers, setting out details affecting the property’s title, such as any mortgages, eases, easements, the zoning, rates and so forth. If the seller is aware of anything from other parties that may impact on the value of the property, such as road works or acquisition for public housing, this must also be disclosed in the Vendor’s Statement. However, other than what appears in the Vendor’s Statement for the property, a seller is not required to disclose matters such as structural soundness or whether the title measurements accord with the actual measurements on the ground. The old legal principal of ‘Let the buyer beware’ takes over, and if there is a sagging roof, or stumping problem, the law says that any price you pay has this problem factored into it, and you cannot later obtain compensation. So examine the property carefully yourself (including measuring the boundaries to ensure they match those of the copy of the title usually found in the Vendor’s Statement), ask the seller or agent about anything you are unsure of, and get a builder or architect to do a proper check of the structure.

2. The Real estate Agent
Usually, the first contact you will have when searching for the property is the real estate agent. The most important thing to remember in discussions with the agent is that he or she works for the seller, and rightly will act in that seller’s best interests when showing you a property. So to obtain the best possible price for his or her employer, an agent will naturally point out to you the positive aspects of any property, and at the same time will try and learn your and other buyer’s requirements and limits. It is up to you to try and learn about anything that may be a negative, and any information that may assist your side of the negotiations, while only disclosing to the agent information about yourself you are happy for the seller to know. By law an agent is required not to mislead or misrepresent a situation, and the majority of agents are professionals who, while they may not volunteer information detrimental to the interests of the seller, will invariably answer any of your direct questions accurately. So ask the agent everything you can think of about a property and the seller’s situation, and remember that when asking that all important question of an agent’s estimate of ultimate selling price, it is only an estimate!

3. The auction
This is one of the most common means of selling property in Metropolitan Victoria. Buyers rightly feel uncomfortable about them because auctions favour the seller. It is usually a high pressure situation, with the auctioneer skilled in the art of generating emotional interest and competition, and the auctioneer can legally accept bids from people bidding on behalf of the seller to help increase the price. Also, at auctions no conditions can be imposed by a buyer such as making a sale subject to finance approval or a satisfactory condition report from a builder. During the auction you may offer smaller bids than those asked for by the auctioneer, which the auctioneer may or may not choose to accept. You are legally allowed to have another person bid on your behalf. Just make sure when they sign the contract that they write next to their name, “and/or nominee”, and that you have executed a proper written authority for them to so act, prior to the auction.

If you make the highest bid, the auctioneer can accept it, in which case you have bought the property, or the auctioneer need not accept your bid in which case the property is passed in. If your bid is accepted, you will be asked to sign a legally binding contract of sale. If you change your mind between making the final bid and signing, or particularly after signing, you can be sued by the seller for compensation, or in rare circumstances forced to proceed with the purchase. The fact that you do not have your cheque book for the deposit will not matter. Most agents carry blank form cheques in such instances. If it is passed in, often negotiations will be sought by the agent with you privately. So make sure you have visited the property at least twice before the auction, have the property checked out structurally, make sure you have finance approved up to the level you plan to bid, and try and stay within your limit in the heat of the bidding!

4. Private sale
This method of sale is preferred by many buyers instead of an auction, as it allows time to consider carefully all aspects of a property and you know its starting price, from which you can attempt to negotiate down. There is also time to consult others who may be involved in making the decision, such as parents who are assisting with finance or children who have a vested interest.

Note that if a property is attempted to be sold by auction but passed in, it may revert to being offered for private sale. This is often a beneficial situation for a buyer, as the seller may have had to lower his expectations significantly, and has incurred the cost of the auction with no result. Unlike an auction, one can negotiate with an agent as to when the final amount is to be paid and the property is to change hands (known as settlement), what items might go with the property such as barbeques or furniture and so forth. Of particular importance in this situation is the ability for you to negotiate the incorporation of conditions in any contract you sign, such as the contract being conditional on obtaining finance, or a satisfactory builder’s report.

If these conditions are included and you are either unable to get approval to a loan from your bank, or a builder declares a structure unsound, you can get out of the contract and obtain a refund of your deposit. Just remember that once an offer is accepted by a seller in writing, you are legally bound, unless one of your conditions is not satisfied.

5. The Vendor’s statement
Every seller of property must provide a signed Vendor’s Statement to a buyer, setting out details of the title of the property, rates, zoning and anything else which a buyer would reasonably want to know before committing to a purchase. This is a very important document. If the seller has not disclosed something of significance (whether deliberately or by mistake) such as the fact that the zoning is commercial and one cannot use the property as a home, then you are entitled to get out of any Contract you sign at a later date, and obtain a refund of all monies paid. For more minor errors such as an incorrect amount of rates payable, you would not normally be entitled to get out of the Contract, but would instead be entitled to compensation from the seller to the extent the error caused you loss. So read a Vendor’s statement carefully, and if possible ask the agent to fax a copy to your solicitor or conveyancing agent for his or her perusal. In this way, you will have a clearer picture of what you are buying, and will know later if a seller has misrepresented some aspect, which if important enough may allow you to undo the Contract if you so wish.

6. The deposit
Upon buying a property at either an auction or after negotiations with an agent or seller in a private sale, you will normally be asked to pay a deposit of ten per cent (10%) of the purchase price, either by cash or cheque. If this money is paid to a real estate agent, the agent is required to keep that money in his or her trust account, and not release it to the seller until certain checks have occurred to be satisfied the title of the property is as described in the seller’s Vendor’s Statement. The agent is under strict regulation to maintain those monies intact, and you should feel comfortable with entrusting the deposit to him or her. Thus, once you have purchased a property and paid your deposit to the agent, you or your 3 solicitor should undertake a title search. You are also legally allowed to ask the seller questions (known as requisitions) about the title of the property within a certain time after signing the Contract. The seller must by law respond accurately to these questions. If the title proves to be substantially different from what the seller has indicated, you can declare the Contract over and get your deposit back from the agent’s trust account. On the other hand, if there is no problem with the title, but you change your mind and do not wish to proceed with a purchase, you can be sued by the seller for breach of contract and must pay compensation. This usually involves the loss of your deposit, as the seller can have it releases from the agent’s trust account to pay for any losses incurred.

7. Two popular contract conditions for buyers
‘Subject to Finance’ and ‘Subject to Builder’s Inspection’
These two conditions are the most commonly sought by buyers in a private sale situation. Subject to Finance If the condition is included that the contract is subject to you getting approval for finance, it is usually worded so that a particular bank or finance provider is named and the loan amount you intend applying for. You then have a set amount of time, often around seven days, to obtain approval from that bank or finance provider, for the amount nominated. Be aware you are required to notify the seller or agent in writing within the set time if you are unable to obtain approval from that bank/finance provider, for that amount. If you do not do so, the contract becomes ‘unconditional’, and you must proceed or pay compensation (like losing your deposit) even if you haven’t been able to obtain finance. If you need more time to find out the bank’s decision, you should ask for it in writing from the agent, and obtain the agent’s written consent on behalf of the seller. If you are unable to obtain approval and properly notify the seller or agent in writing within the required time, usually with evidence such as a letter from the bank, you can get out of the contract and obtain a refund of your deposit. Subject to Builder’s Inspection As for the finance condition above, you can insert another condition allowing you to have a builder or architect, paid for by you, inspect the property within an agreed amount of time. As for the finance condition, if the builder or architect declares a structure unsound, and you properly notify the seller or agent in writing within the required time, you can get out of the contract and obtain a refund of your deposit.

8. The Mortgage
Unless you are one of the lucky few who can buy a property without financial assistance, you will need to enter into a mortgage with a bank or other lender. You should commence this process as soon as possible after purchase of your property, if not before, to ensure the mortgage is signed and funds are ready for settlement.  The mortgage is quite simply a document that allows your lender the right to sell your property to recover  the amount of money it lends you, if you don’t pay an agreed amount at  agreed times. Upon settlement of your property, while you may get the keys, your lender gets the actual copy of the title to that property, and also has its name registered on the copy of the title held at the Titles Office. This ensures that you are unable to sell the property until your lender is satisfied that it has been paid out in full. If you miss an interest payment, technically the lender can ‘foreclose’ the mortgage, which means your lender can legally walk in the next day, put up a “For Sale” sign and try and sell the property out from underneath you. It is commonly known as a “Mortgagee Sale” or Mortgagee’s Auction”. Any monies they get from such sale go towards paying off your mortgage, and if there is a shortfall you will still be required by the lender to make up the difference. If there is a surplus after the lender is paid out in full including all interest to that date, that surplus is yours. Practically, lenders dislike foreclosing due to costs and inconvenience. You should contact your lender if you foresee a problem. They will then normally discuss alternatives with you, such as increasing the term of the loan with reduced payments and so forth. Prior to buying a property, if you need additional funds make sure your chosen lender has approved in principle the amount you wish to borrow, and it is advisable to again contact you lender as soon as you have bought a property, so that they may put in process the preparation of a letter of offer to you, which if you accept will result in the preparation of a mortgage for signing well before settlement.

HOUSING GUARANTEE FUND
By law, any renovations to existing property, or new structures including garages but excluding flats built after 1984, have the benefit of a guarantee with the Housing Guarantee Fund against defective workmanship by your builder. This is provided the builder is properly registered as a member of the Fund. Most recognised builders are members, and should display evidence of their membership on their stationery. This guarantee lasts for seven years from the date of the work, and can be passed on to future owners of the property.
The Fund is contributed to by builders who are members of the Fund, to ensure it is sufficiently financial to cover any claim you or a successor in title may have. It is simply a matter of applying to the Fund, and an inspector will be sent out to examine your claim. If it is found to be valid, the builder is requested to repair or replace the problem, failing which you will be compensated and at liberty to employ another builder of your choice to resolve the defective workmanship.

9. Buying ‘off the plan’
It has been common over the last few years to buy property “off the plan” and before it is constructed, particularly apartments. Provided you do not need the property for several months, this way of buying property has its attractions, including a substantially decreased stamp duty, an ability to choose fixtures and fittings and colour codes to a certain degree and of course you know the place is brand new. One thing to be careful about such purchases is when the developer/seller expects it to be finished. It is often the case that properties sold before they are built are often one of many properties on of a Plan of Subdivision. Plans of Subdivision must be agreed to by the local Council, and registered in the Titles Office, and to save time a developer/seller will often have you sign the Contract prior to these events taking place. The Contract will then be worded so that settlement, when you pay the money and get the key, will occur on a certain date, or within 14 days of the Plan of Subdivision being formally registered in the Titles Office, or within 14 days of a Certificate of Occupancy being issued, whichever is the later. So while a date may be given to you, everyone must wait until the Plan is registered, which can take up to six weeks from being lodged, or until the local Council inspects the property and issues a Certificate of Occupancy indicating work on the property is for all intents and purposes finished. As a rule, give yourself a buffer of a few extra weeks from the date you anticipate moving in, so you don’t end up in the local motel with all of your possessions while a party outside your control decides when you will move in!

10. An extra final inspection
You have a right to request the agent to allow you to inspect the property a final time, within 7 days prior to settlement. Should anything about the property not be the same as that at time of signing the Contract for its purchase, even in relation to the state of cleanliness or the garden, you should contact your solicitor to see if that can be attended to prior to settlement, or in the alternative compensation deducted from the balance of the purchase price. DISCLAIMER: This information is provided as a broad overview and should not be relied upon as a substitute for legal advice.