What should you be doing when you are counting down the days before you pay the price and receive the keys?
There are 6 jobs you can be doing to de-stress the process and make settlement smoother:
Job #1 Make sure your lender has all their requirements - Don’t leave it to the last minute. Some loan approvals have extra requirement. All loan approvals require a loan contract and a mortgage to be signed as much as 10 days before settlement is due. If you are late, you cannot blame the lender if you must pay penalty interest of 10% pa under the Contract for late settlement.
Job #2 Make sure you have enough money to settle – Money has a habit of disappearing into extra expenses the closer you get to settlement. The largest expense is stamp duty, which must be paid on settlement, unless it is an off the plan purchase where it is payable earlier - 15 months after the Contract Date. First Home Buyers are eligible for a Grant of $10,000 towards the stamp duty, if it is a new home unit and the price is no more than $750,000. The next largest expense is the loan expenses, which are deducted from the loan advance. Lenders Mortgage Insurance (LMI) is a large expense if the loan is more than 80% of the price. Then there are legal fees, plus the cost of searches and enquiries and settlement costs. Finally, allow about $500 to cover rates adjustments.
Job #3 Inspect the home unit before you settle – If you notice any damage to the carpets, the floating floor, the tiles, the doors, the built-ins, etc that was not there when you first inspected the property, ask for a price allowance. Check that the lights, the stove, the range hood, the dishwasher and the hot water system are working properly. Inspect even if the home unit is tenanted, because you lose all rights to complain once you have settled, unless it is an off the plan purchase where a 3 month defects warranty applies to cover non-cosmetic defects. If the property is sold vacant, check that all the old furniture and junk have been removed from the garage!
Job #4 If tenanted – Check with the managing agent that the rent is up to date. If the lease is an expired lease, ask the managing agent to have the tenants sign a new lease to commence when you settle the purchase. The managing agent looks after the transfer of the rental bond and the rental adjustment.
Job #5 Notifying the authorities - If buying to live in, it is your responsibility to connect electricity, gas, and telecom. Your solicitor / conveyancer will notify the Local Council, the Water Board and the Strata Manager of your purchase and your mailing address. Your lender looks after the transfer of title.
Job #6 Keep records of your purchase – Capital Gains Tax is not going to go away. This means that you need to keep records of your purchase – which includes stamp duty and other expenses paid, to establish a cost base to calculate your capital gain. You keep these records until you sell. This advice applies even if you are going to live in the home unit, because you will be paying capital gains tax if you move out down the track and keep the home unit as an investment.
Anthony J Cordato is a Sydney based property lawyer. Visit: www.propertyinvestmentlawyer.com.au
