TIPS AND TRAPS

Owing a property has become a part of many Australians. All have different reasons whether to satisfy our primal instinct for shelter and security or to accumulate long term wealth, property has become almost an irresistible temptation for the savvy investor.

Many also give way to reason and logic and buy property based on emotional aspects and that is when costly decisions are usually made.

There are ways of managing the risk of buying a property for all the wrong reasons.

• Make sure you have adequate funds to complete the purchase. Seems easy enough, however some buyers actually get caught out prior to settlement and find that they have an actual shortfall.

• Some actually exchange the contract of sale because they have the cash deposit to do so and fail to obtain the important formal finance approval from their bank. Then find that the bank will not support them for the finance amount they were expecting because they do not have the financial borrowing capacity, the property is situated in a high density area or LMI will not approve the loan to such a high LVR.

• Make sure that your solicitor provides you with a schedule of all costs and fees that you need to pay at least two weeks before settlement see Property buying associated costs and Borrowing costs calculator, this will ensure that you will avoid any last minute surprises.

• Caution must be exercised as vendors are not sympathetic to you if you do not have funds to complete. Once you are issued with a notice to complete you have around ten days to settle whilst you are charged interest for every day that you are late. Upon the expiration of the notice you may lose your deposit altogether.

• Always do some preliminary home work before you make an offer on a property such as check with the local real estate agents for comparable property prices you might even have an independent valuation done to establish value for money you might even ask the local council whether any proposed developments or re-zoning is planned for the area which could reduce the re-sale value of the property.

• When buying a property to live in yourself try to contribute as much of the deposit as possible as this simply means that you will be borrowing less and your loan repayments will be less and you might avoid paying for the lenders mortgage insurance which can range from anything from 1.5 per cent to 2 per cent of the loan amount if you are bowing more than 80 per cent of the property value. You also increase your chances of obtaining your loan.

• Try to purchase the property where it is predominantly owner-occupied.

• Besides negotiating the purchase price with the vendor also try to negotiate your fees with your solicitor or conveyancer and your prospective lender