Buying a house is a huge step in your life but it can be a daunting process. This article discusses key issues that you will need to think about. We recommend engaging a lawyer early on in the process to ensure that everything runs smoothly.
Where do I start?
The first step of buying a home is saving for a deposit and planning your budget. Contact your bank or a mortgage broker to see how much you are able to borrow and whether you can get pre-approval for a loan. Throughout this process it is good to keep in mind how you might like to structure you loan and to investigate different interest rates. Make sure to check your eligibility for withdrawing KiwiSaver funds or obtaining a first home grant by contacting your KiwiSaver provider and Kāinga Ora. You can also get pre-approval for these but you won’t be able to apply for the funds until you have a fully signed agreement. Your lawyer will need to help you with the final application and the funds will eventually be deposited in the law firm’s trust account.
All lawyers in New Zealand need to comply with anti-money laundering legislation (AML) so you will need to supply your lawyer with some ID and a proof of address that can be verified. This is also required for your bank so it is good to get it all sorted early in the process.
The next step is searching for your home, think about the location and specifications that suit your needs. It is a good idea to inspect the property yourself to look for things that may not have been apparent in the listing photos.
Sale by auction
At auction, a bid is an unconditional offer. This is why you must have all of your due diligence done before auction to know exactly what you are buying. This can include a valuation report, building or engineers report, finance, toxicology report, EQC checks, Land Information Memorandums (LIMs) and a title check. It is important to go through these things with your lawyer to ensure that everything is in order. You also may find that it is necessary to enter into a pre-auction agreement with the vendor to include further terms that would apply if you were successful at auction.
If you are the successful bidder, you typically need to pay a 10% deposit on the day of the auction. Keep in mind that you will not be able to use KiwiSaver funds as a deposit at auction as a fully signed agreement is required to apply for a full withdrawal and this can take up to 10 working days to be processed by your KiwiSaver provider.
Sale by offer and negotiation
If you want to make an offer on a property, get in touch with your lawyer so that a sale and purchase agreement can be drafted. Real estate agents will sometimes draft the agreement but we strongly recommend showing it to your lawyer prior to signing. The agent may try to assure you that a Solicitor’s Approval clause will satisfy your lawyer, but the reality is that there are limited changes we can make under this.
Your offer can be a conditional one, where you include conditions that must be met before the agreement goes unconditional. A standard agreement provides the option for it to be conditional on you being satisfied with a building report, Land Information Memorandum, toxicology report and obtaining suitable finance. Further Terms can also be added to the agreement such as;
- obtaining suitable insurance
- assigning EQC claims to you
- changing the settlement date if there is a COVID-19 lockdown
- a sale condition that makes your purchase conditional on the sale of your current property.
The conditions need to be met in the time frame specified in the agreement. Once all conditions have been met, the agreement becomes unconditional.
The vendor may counter-offer in which case you would be able to negotiate, they may also reject the offer or not accept some of your conditions. If the vendor accepts your offer they will sign and date the agreement.
When do I get the keys to my home?
The last step in the process of buying your first property is settlement where you get the keys and your name goes on the title as the registered owner. Between confirmation and settlement you will need to visit your lawyer to sign documents. You are also entitled to a pre-settlement inspection of the property that allows you to make sure that everything is working and there hasn’t been any damage to property since your last visit. Your lawyer can negotiate with the vendor’s lawyer for a price reduction or ask the vendor to fix damage if there are any problems.
Settlement date is when the rest of the money is paid to the vendor. The funds to purchase the property will be in your lawyers trust account (which may be transferred by you, your bank, Kāinga Ora and your KiwiSaver provider) ready to be sent to the vendor’s lawyer. Make sure you are contactable throughout the day, your lawyer will call or email to check that you’re ready to settle. When the vendor’s lawyer has confirmed that they have received your funds, your solicitor will transfer the title to you by registering the property in your name in the online system (Toitū Te Whenua Land Information New Zealand). After settlement is complete you will be notified by your solicitor and you can pick up the keys to your new home!
Buying a property is a huge step and a great achievement. It is a good time to think about making a Will and how your assets would be split in the event of a relationship breakdown. This article covers the general process of purchasing a property but keep in mind that your situation may be more bespoke. One of our experts at Parry Field would be happy to chat if you have any questions or would like to take the next step in your home-ownership journey.