Step 1 | Pre-Contract
1. Confirm Borrowing Capacity
Talk to a mortgage broker or your bank manager
Before making an offer on a property, you need to be very clear on not only the limits of your price range, but your ability to actually pay both the sales deposit amount as well as the balance of the purchase price. The bank deposit is not the same as the sales deposit. You can learn more about the differences by clicking here.
When it comes to obtaining finance, most lenders are concerned to ensure that:
You have a suitable deposit;
You can service the debt/borrowing; and
The property you are purchasing represents a sufficient source of security for lending.
Deposit
Ideally, you will be looking to ensure that, together with your Kiwisaver, you have 20% of the final purchase price e.g. $100,000 towards a $500,000 property.
Some banks may offer lending with less . However, with less than 20% you may be deemed a ‘Low Equity Borrower’, meaning:
the interest rates on offer are higher;
the lender will require you obtain a registered valuation as a condition of lending; and
any cash contribution amount for new lending is less.
Servicing
All Lenders will require you to provide evidence of your ability to service the borrowing/debt. This means you will likely need to have a secure source of both historic and on-going income.
Sights like settled.govt.nz have Mortgage Calculators to help you work out your costs.
Security
The property you purchase will be the primary source of security for the lender’s borrowing.
Lenders take security in the property in the form of a registered mortgage. In the event you default on the terms of your loan, the bank will need to be sure that there is sufficient equity/value in the property to recover any outstanding debt.
As touched on above, where you are a Low Equity Borrower, or there is concern that the purchase price is above market value, the lender will likely require you to obtain a registered valuation of the property before approving an offer of finance.
Having a mortgage broker acting for you during this process may help you obtain the best terms available.
2. Attend open homes and search the property market
Attend open homes
By now you should have a good idea of what your borrowing capacity is as you are now considering what you’re looking for in a home. If you like a home and you attend an open home, be sure to consider the following:
Is the neighbourhood improving in value? What is the school zoning? Is there parking for visitors?
Does the property tick the boxes for what you’re looking for, for example, sun, bedrooms, bathrooms, views and outdoor living?
How much storage is there? Can more be easily added?
Is there enough water pressure? Turn on the shower and taps and flush the toilet.
What kind of exterior cladding does the house have? Is it well maintained? Check for cracks in plaster cladding.
Check that everything works - for example, open windows and turn on taps and light switches.
Note any smells that could indicate dampness or a previous flood.
Will your furniture fit?
Is there a garage on the property? How big is it? Can you use it for a car or storage?
Check the physical condition of the house inside and out. Do the floorboards move or does the floor slope?
If the property has retaining walls, check for sagging or cracks. Repairing retaining walls can be expensive.
Step 2 | Offers
1. ConTact the Real Estate Agent (Agent)
The process for making an offer varies depending upon the method chosen by the Vendor/Seller for selling the property e.g. buying by auction versus buying by tender is quite different. To learn more about the various methods of purchasing a property, click here.
Regardless of the process chosen by the Vendor, the first step in making an offer is to contact the Agent and advise him/her of your interest and interest in making an offer. The form of the offer will typically be the template Agreement for Sale and Purchase of Real Estate prepared by the Auckland District Law Society. To learn more about the Sale and Purchase Agreement (Agreement), click here.
2. Advise the Agent who your Lawyer IS
When you contact the Agent, advise him/her who your lawyer is and ask them to send a copy of the Agreement to your lawyer to review.
3. ConTact your lawyer
Upon receipt of the Agreement, your lawyer will get in contact with you to discuss the terms of your offer.
If you make a conditional offer, conditions could include making your offer subject to a favourable building inspection or a valuation, confirming your financial arrangements, or selling your own property etc.
The seller can also attach conditions to the sale, for example, changing the settlement date, or specifying the details of the chattels that come with the house.
4. Make an Offer
Once you have agreed the terms of your offer, you need to sign and present a copy to the Agent who will present it to the seller. The seller will consider your offer and decide whether to:
accept your offer and sign the Agreement.
reject your offer. In this case, you may decide you want to put in another offer. The seller doesn’t have to tell you why your first offer wasn’t accepted.
negotiate your offer. The seller may decide to make changes to the Agreement, which the agent will point out to you. You may go back and forth with the seller a few times before you finally agree on terms you are both happy with. Or, you may simple decline the counter offer and terminate the negotiation.
Only once the offer is accepted by the Vendor will the Agreement be signed.
Step 3 | Conditional Contract
1. Receive Executed Agreement and Monitor Conditions
Once your lawyer receives an executed agreement, the focus turns towards satisfying conditions e.g. arranging finance or getting the property checked by an expert.
The time frames for satisfying the condition are agreed and recorded within the Agreement. It is not only a good idea, but an obligation within the Agreement, to take steps to satisfy the conditions. If you fail to satisfy the conditions by their due date, the Vendor will likely be entitled to cancel the agreement.
If you need to have finance approved, your bank or lender will ask for a copy of the sale and purchase agreement. They may also require a valuation, which you will need to organise and pay for.
If you need more time to complete any conditions, your lawyer can negotiate with the vendor’s legal representative to request an extension. But this request may be declined.
When all the conditions have been met, the sale becomes unconditional. At this point you are now contractually obliged to purchase the property and can look forward to settlement.
Step 4 | Unconditional Contract
1. Arrange Insurance
A typical condition of finance is that you insure the property and have your lender noted as an “interested party”. Prior to settlement, you will need to contact your insurance provider to arrange for the property to be insured from the settlement day. You need to also request they send a “Certificate of Currency” to your Solicitor as proof of this.
Your Solicitor will then return a copy of this to your Lender together with the executed loan documents.
2. Perform Pre-Inspection
Whilst not compulsory, you should arrange to inspect the property before settlement day at least 2 working days before the settlement date.
The pre-settlement inspection is an opportunity to check the property and chattels are in the same condition they were when you signed the agreement to buy the property.
Things to keep an eye out for in the pre-settlement inspection include:
make sure that all the chattels/items listed on the Agreement are in the property and are in good working order.
check that fixtures such as lights and curtains work too.
check if there is any damage to the property since the sale and purchase agreement was signed.
check that all the previous occupant’s belongings and rubbish have been removed.
make sure that all keys, garage door remotes and security alarm codes are accounted for and will be available to you on settlement day.
If any issues arise from your pre-settlement inspection, you should contact your lawyer or conveyancer immediately. The typical remedies include:
the seller agreeing to fix any damage immediately; or
the seller may agree that the cost of fixing the issue can be deducted from the final payment.
3. Book a meeting with your Solicitor
Your lawyer will work with your Lender to make sure all the paperwork and payments happen on settlement day. However, you will need to visit your lawyer before settlement to sign:
an authority for your lawyer to transfer the title and register a mortgage against it; and
your bank’s home loan and finance agreements.
You should also check with your lawyer to ensure there are sufficient funds on the Settlement Date to pay the balance of the Purchase Price. The balance will also likely include a portion of rates e.g. if rates have been paid in advance by the seller, then the balance will increase to reflect your share of those advance rates.
Step 5 | Settlement
The “Settlement Date” is the day the property officially changes ownership. This occurs once your solicitor has made the final payment.
A number of things need to happen in sequence on the Settlement Day between your lawyer, the seller’s lawyer and your Lender. Other than managing the actual ‘shift’, there is nothing for you to do to make settlement occur.
When the documentation and payment has been completed, your lawyer will let you know. You can then collect the keys from your lawyer or from the Agent.
What actually happens?
Whilst the process is relatively standard, they are rarely the same. Property settlement is like a chain, and any broken links in the chain may delay settlement. However, the basic mechanics of settlement include:
Paying the balance of the Purchase Price. The money is paid to the seller via the seller’s lawyer who gives your lawyer or conveyancer a receipt for payment.
When this is completed, your lawyer will tell you the sale has gone through and you can collect the keys from the seller’s lawyer or conveyancer or from the agent.
The seller’s lawyer will release documents to your lawyer who will arrange for the transfer of ownership and to have your details and the details of your bank or lending company recorded on the record of title.
Other things to consider on the Settlement Date
Settlement only takes place once all of the above steps take place. There are matters outside of your Lawyer’s control e.g. when they receive funds from your Lender. Accordingly, we recommend planning the move for the day after settlement in case there are unforeseen issues or delays on the day.
Change the address of your contents insurance and make sure it includes cover during your move.
Book a moving company if you are using one and plan the actual move.
It’s a good idea to leave time to clean your new home before you move your furniture in.
Arrange transfer of services including internet, electricity, gas, and phone.
Notify your landlord if you are currently renting and apply to get your bond back.
Step 6 | Post Settlement
Once you have settled, it is time to simply enjoy living in the new property, meet your neighbours and put your feet up.
You can expect to receive a full report from you Solicitor:
clearly showing a record of all funds that were received and paid from the Lawyer's Trust Account;
enclosing your outgoing lenders' settlement statement highlighting how the final settlement figure was calculated;
together with their Tax Invoice highlighting both their fees, disbursements and any reasonable office expenses.