Know your budget
Before you pound the pavement in search of your dream property, the first step is to meet with a reputable mortgage broker or bank for pre-approval of finance. This is essential to determine the amount you can borrow, the deposit you will need and your final budget.
Can I rely on 'pre-approval'?
Pre-approval, or conditional approval for finance, is usually provided once your lender has confirmed your credit-worthiness, assessed your income and commitments and determined your ability to repay the loan. Pre-approval can expedite the mortgage application process once you find the property you wish to buy, but it is still conditional upon meeting your lender's 'formal approval' criteria.
Formal, 'unconditional approval'
Formal, unconditional finance approval for your property purchase is usually obtained once you have satisfied certain final conditions your bank will require, including a formal valuation of the property (ordered by your lender to make sure the purchase price doesn't exceed the market value of the property). Any offer you make on a property by private sale should always be made conditional upon and subject to formal, unconditional finance approval (not pre-approval). If you are bidding at auction, you must have your finances in order ahead of time, the payment of the deposit will be due at the fall of the hammer and the auction contract will not allow for any conditions making the offer subject to finance.
How much will you really need?
There is much more to consider than just the purchase price of the property you wish to buy. Additional costs you will need to factor in to your budget will include stamp duty, government fees, bank fees and charges, legal (conveyancing) fees and insurance, all of which will add thousands of dollars to the purchase price and eat into your deposit funds.
It is important to note that stamp duty, government fees and bank fees will be deducted from the total loan amount available to you at settlement of your property purchase. Your lender will pay the stamp duty on your behalf out of your loan funds (as a condition of settlement) and you will be required to make up the short fall between the total loan amount available to you and the balance of the purchase price due at settlement.
All purchasers of property in Victoria must pay land transfer duty (otherwise known as stamp duty). The amount of stamp duty payable will depend on the purchase price of the property, your intended use of the property and your residency status (if you are a foreign purchaser you will pay more stamp duty than an Australian Citizen or Permanent Resident).
You may be entitled to stamp duty exemptions or concessions relating to:
off-the-plan property purchases
first home buyers
principal place of residence
deceased estates – transfer of property to a beneficiary
property transfers between spouses or partners
transfer of the family farm
young farmers buying their first farmland property