Home Buying Q and A: Settlement Steps, Loan Repayment Timing, and Key Legal Considerations When Buying a Home

Navigating the home buying process can be complex, especially with the many legal and financial considerations involved. Whether you’re a first-time buyer or an experienced homeowner, understanding the steps in the settlement process, the timing of your first loan repayment, and the implications of missing a mortgage payment are crucial. Additionally, knowing the legal considerations when buying a home is essential to making informed decisions. This article answers these key questions to help guide you through your home-buying journey in Australia.

Q. What Are the Steps Involved in the Settlement Process?

1. Signing Loan Documents: Shortly after your loan is approved, the lender will issue loan documents for you to sign.  In most cases this is done electronically eliminating the need to wait for them to arrive by post or to post them back.  The documents comprise the loan contact, the mortgage of land document and some other forms to assist with the settlement and setting up the loan (for example forms that set up direct debits for the loan repayments and authorise the lender to draw the necessary funds for settlement from you accounts)
2. Legal Documents: Your conveyancer or solicitor will also be busy preparing and/or reviewing other important documents, including the Transfer of Land document that results in the transfer of the title from the seller’s name to yours. They also work with the seller’s representative to work out the final adjustments to the contract price so that at settlement the vendor has in effect paid for all costs of the property up to that point and that from then you are paying for the costs of the property,  
3. Pre-Settlement Inspection: The seller is obliged to handover the property to you at settlement in the same condition as at the time you bought it and that the items that you have paid for (refer to the contract) remain in the property. So, you need to arrange with the sellers Real Estate agent for a final inspection of the property to ensure this is all in order.  If it isn’t, then you need to address this with the agent and your legal representative.
4. Preparing for Settlement: Your conveyancer and mortgage broker will liaise with each other and with the lender to ensure the loan funds are ready and available in time for settlement. This also involves communicating with the seller’s legal representative.
5. Settlement: These days settlement is all done electronically.  Your legal representative and lender meet with the seller’s representative (and its lender) to exchange documents and funds. Your lender will transfer the loan amount so that any loan or debt the seller has tied to the property is cleared and the seller get the balance. Once this is completed you will get a message from your conveyancer/lawyer that you now own the property and you can contact the real estate agent to collect the keys.
6. Notification: The change in ownership is registered as part of the settlement process and similarly the relevant authorities (e.g., the local council) of the change in ownership.
7. Connecting Utilities: Before you move in, you need to arrange for utilities to be “turned on” or connected.  Whilst this can’t happen till settlement has occurred, you can arrange for this to happen in advance.
8. Moving in: This is the exciting bit. However, we encourage a bit of patience and recommend that where possible you delay moving in to the day after settlement (or later). If for any reason settlement gets delayed (either to later on the same day or the next business day) then you will be under pressure, and up for extra costs, especially if you are using a moving company and all your possessions are loaded onto their trucks waiting to move to your new place. For similar reasons we recommend settling on any day of the week other than Friday.

This process typically takes place over a few weeks and is coordinated by your legal and financial representatives to ensure a smooth transition of ownership.

Q. When Does My First Loan Repayment Come Out and From Where?

Your first loan repayment typically comes out about one month after the settlement date. The exact timing can vary depending on the lender and the terms of your loan agreement. Your repayment will be automatically deducted from the bank account you nominated during the loan application process. It’s crucial to ensure that there are sufficient funds in your account before the repayment date to avoid any late fees or penalties.

You can get the specific details of your loan repayments and the schedule from the loan documents you signed but your mortgage broker can also provide this.

Q. What Happens if I Miss a Mortgage Repayment?

If you miss a mortgage repayment, it’s important to act quickly to minimise the impact. Here’s what typically happens:

1. Late Fees: Most lenders will charge a late fee for missed payments.
2. Interest Accrual: Interest will continue to accrue on your outstanding loan balance, which can increase the overall cost of your loan.
3. Credit Impact: Missed payments can negatively affect your credit score, making it harder to secure credit in the future.
4. Lender Contact: If the payment is overdue by a few days, your lender will likely contact you via email or SMS to bring this to your attention. Don’t ignore these messages, contact the bank (using contact details on their website rather than in the message so reduce the risk of a scam/fraud being committed on you)
5. Default: If the payment is not made within a certain period (usually 90 days), your loan may be considered in default, which could lead to more serious consequences, it will certainly damage your credit rating and can lead to foreclosure and legal action.
6. Options for Assistance: If you’re facing financial difficulties, contact your lender as soon as possible and ask for the Hardship Team. They can discuss your predicament offer hardship arrangements, payment plans, or temporary relief options. It is really helpful in this situation to tackle the issue early on, and if possible, demonstrate a clear and realistic plan to get back on top of things. Avoiding the problem and burying your head in the sand will work against you.

It’s crucial to address missed payments promptly to avoid escalating consequences.

 Q. What are the Legal Considerations When Buying a Home?

Buying and selling property is heavily regulated by state law. We could not begin to tell you everything you need to know here. But here are a few things to keep in mind:

1. A contract to buy/sell property is only legally binding is in writing: A verbal offer to buy/sell property, that is accepted by the other party, is not enforceable until it is in writing and signed by all parties. At a minimum it needs to spell out who the buyer and seller is, what property is being sold, the price that the property being sold for and any other material term (such as the deposit, when settlement will be any conditions on the sale.  Typically, in Victoria, the vendors legal representatives will draw up a contract using a proforma contract issued by the REIV (all states have their equivalent version of this). Always get the contract reviewed by your legal representative and make sure you understand the terms and conditions outlined in it, including any special conditions.
2. Engage a lawyer/conveyancer: Engage a legal representative to help with the purchase. Pre-purchase they can review the contracts and help you understand what you are signing up to and then as appropriate negotiate for the addition, amendment or removal of clauses in order to protect you. They can also conduct a title search to confirm the seller’s ownership and check for any encumbrances or easements on the property that may impact your use and enjoyment of the property. Once you have bought your lawyer/conveyancer will be key to preparing for settlement and ensuring the smooth transfer of the property across into your name.
3. Cooling-Off Period: In Victora there is a 3-day cooling off period (varies from state to state) on all property purchases UNLESS the transaction takes place within 3 business days of the publicly listed auction.
4. Stamp Duty: Consider the stamp duty payable on the property purchase, which varies by state, property value and transaction type (for example there are various concessions for First Home Buyers). Stamp duty is collected by your lender on the governments behalf and remitted on so you do not need to worry about making the payment yourself. It all happens as part of Settlement
5. Buying at auction:  When you buy at auction you cannot put any conditions on your purchase. This means you cannot buy subject to finance or building inspection etc and if you want to add to or remove from the contract any terms you need to negotiate this in advance of the auction.  Note that these rules apply not just on the day of the auction but within 3 business days either side of the auction date.
6. Building and Pest Inspections: Conduct thorough inspections to uncover any potential issues with the property before finalising the purchase.
7. Zoning and Land Use: Check the local zoning regulations and land use restrictions to ensure the property can be used for your intended purpose.
8. Finance Approval: Make sure you have a finance approval before committing to the purchase especially if you are buying at auction and there is no cooling off period.
9. Buyer Beware: Overriding all the above is the simple but important maxim…Buyer beware.  Unless the sellers conduct contravenes a specific law, the responsibility falls on the buyer to do their research and homework before they commit unconditionally to a purchase.  The seller has limited obligations to the buyer. That is why a team of experts (mortgage broker, legal rep, building inspector, buyer’s agent) that can guide you through the process is so important.

Buying a home is one of the most significant financial decisions you’ll make, and being well-informed is key to a smooth process. Understanding the settlement steps, knowing when your first loan repayment is due, and being aware of the consequences of missing a payment are all essential. Equally important is grasping the legal considerations when buying a home to ensure you’re fully prepared for the complexities of homeownership in Australia. With the right knowledge and support, you can confidently navigate your home-buying journey.