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All you need to know when buying your first home
Tips for making the experience exciting rather than daunting
Haigh Lyon’s property team has put together a three-part series providing tips for those entering the housing market for the first time. In the second article, they tell the story of first home buyers Katy and Sonny and the steps they took towards home ownership.
Like many looking to get on the property ladder, Katy and Sonny were tired of renting, and to help save a house deposit they moved in with Sonny’s parents.
After a year of sharing the family bathroom and in desperate need of their own space, they bit the bullet and made the decision to purchase their first home.
It wasn’t going to be easy with the daunting prospect of endless open homes, nerve racking auctions, and the price they would have to pay. Even with house prices tipped to come down, for many, including them, a first home still seemed out of reach.
But Katy and Sonny were determined. The following is a check list outlining what they found most useful when purchasing their first property.
Finance
For Katy and Sonny, the biggest part of the finance equation was asking themselves what they felt comfortable with given the significant financial commitment they were about to make.
As a first step, they spoke with their bank (a specialist mortgage broker can also help) to find out how much they could realistically afford to spend on a property.
They also planned to withdraw their KiwiSaver to assist with their deposit. Another option was to apply for a first home grant from Kāinga Ora.
To enable the bank to assess how much they could spend, and to obtain an offer of pre-approval from the bank, they compiled a comprehensive list of documents including:
- Proof of income
- Calculation of outgoings
- A statement of assets and liabilities
Once the couple had completed their application for a KiwiSaver first-home withdrawal contribution their lawyer assisted them with the approval process.
While it wasn’t an option for them, it is also worth considering whether parents would consider contributing, either as a gift or a loan.
Wish list
Research is key when buying any property. Katy and Sonny made a pact to always remember that this was their “first home”, not their “forever home”.
They knew they should be looking for a home that works for them and was affordable. They compiled a “wish list” of what was essential and what was a “nice to have” by attending as many open homes as possible in the areas they liked.
Creating this wish list was helpful in determining what was important to them. However, they were aware of the need to adapt the wish list based on what market research revealed and changing budget factors.
Price by negotiation
Katy and Sonny ended up buying their home by auction (more on that soon). However, along the way they learnt about price by negotiation.
There are a number of key things to note by going down this property buying path. Prior to signing an agreement with the vendor, you should provide a copy of the agreement to your lawyer for review to ensure that you have the correct conditions in the agreement.
Your lawyer can provide a run-down of the various conditions required in the agreement. Caution should be shown if a solicitor’s approval condition is inserted into an agreement because it can have severe limitations and does not offer the same flexibility as a due diligence condition if you want to cancel an agreement.
Due diligence
Once Sonny and Katy found a home that met most of their wish list criteria they went about their due diligence.
Knowing that the auction agreement must be “unconditional”, they had to do their due diligence before the auction. This involved obtaining the following documents for their lawyer to review:
- Draft auction agreement
- Land Information Memorandum (LIM) report
- The title to the property
- A building report
After completing a review of these documents their lawyer provided detailed advice covering their obligations under the draft auction agreement if they should be successful. At this stage it is also a chance for the lawyer to highlight any red flags in the other documents.
By having this report, Katy and Sonny had confidence there were no potential issues and based on this information they moved forward with completing the purchase.
Purchasing at auction
After completing their due diligence with the assistance of their lawyer, they were ready to bid at auction. The pair attended a number of auctions to help them understand the process and were given helpful tips from their lawyer about auctions and bidding.
For example, it was possible for them to seek variations to an auction agreement prior to the auction that were personal to them and would apply if they were the successful bidder.
Examples of these variations were:
- An amendment to the settlement date which was set in the agreement
- A change in the deposit payable on completion of the auction agreement from 10% to 5%
One of the main reasons for them wanting a change to a 5% deposit was that they were reliant on withdrawing their KiwiSaver and/or receiving a first home grant. This meant they would not have had 10% on the day of the auction, only at settlement.
Armed with auction tips and techniques, and a little bit of luck, Sonny and Katy’s bid was successful.
Structure of ownership
Owning your own home doesn’t end at the auction. One key consideration is the appropriate way to own your new property.
For Katy and Sonny, it was reasonably straight forward as they would own their new home in a personal capacity.
However, other options include owning property through a trust or a company. For example, if you are a director of a family business, with potential exposure to creditor claims, you may decide to use a trust which can be established with the help of a lawyer.
Preparation for settlement
There were many other important decisions to make post auction – and not just what moving company they were going to use.
Katy and Sonny had a check list which included:
- Obtaining house insurance
- Notifying their bank they were successful at auction so the bank could prepare loan documents. They advised their bank to send loan documentation to their lawyer well ahead of time to ensure a smooth and stress-free signing of documentation in the lead up to settlement
- Undertaking a pre-settlement inspection at least two working days prior to settlement. This was to ensure their new home was in the same state as it was at the auction, and all the chattels listed in the agreement work properly. Two working days would enable their lawyer to ensure sufficient funds were retained on settlement to have them fixed or replaced, or to allow the vendors time to fix or replace them
- Transferring funds early to ensure no hold ups on the day with funds not being cleared
- Booking a moving truck, which they did for between 2pm and 4:30pm to ensure that they we were not paying for mover’s costs pending settlement on the day as there is no set time for when settlement happens
Settlement date
Settlement day was a breeze for Sonny and Katy because they were organised with everything in place well ahead of time.
It meant they could kick back on their first night in their new home and enjoy it.
They also reflected on the process of buying a house. While there were many stressful moments, by being prepared, well researched, and having expert advice throughout the entire process, they looked back on it as an exciting and enjoyable time. Which is exactly what it is meant to be.
If you are looking at purchasing a home or property, Haigh Lyon can assist you to make the process a little easier. Contact Shaun McGivern on [email protected] or 09 306 0623.