Got your credit score in order? Check!
Saved for your home loan deposit? Check!
Filled in your mortgage application, and found the right home for you? Double check!
With all those milestones crossed off your list, you’re likely ready to march straight through those six panel wooden doors and make yourself at home, correct?
Well, you deserve it. All that hard work’s paid off, so I’d definitely say a house warming is in order. But before you make plans to crack the champagne on the veranda, there’s just one last hurdle you’ll need to conquer.
The property settlement process.
What is the property settlement period?
The settlement period, when we’re talking about buying a home, refers to a 5-8 week period where, funnily enough, all the legal and financial requirements get settled. It’s an official property settlement process organised by your conveyancer with your lender and the house seller’s (vendors) conveyancer.
They’ll meet in person to hand over the title of the home – transfer it into your name – and sort out your outstanding balance of the sale price. When you buy a property, the sale contract will be prepared for you and the seller to sign, and this contract will include the property settlement date (called the completion date) – that’s the day when the house is officially yours.
The average settlement period is generally between 5-8 weeks, and in NSW, 42 days is the standard. But it’s up to you and the seller to negotiate a settlement period. My advice? Take your time to think about what’s right for you.
Not sure what that means?
Well, I’m glad you asked.
Why do I need a shorter settlement period?
Because you’re impatient. You want to get out of your rental, or your parent’s house post haste, and you just can’t put up with it any longer. Fair enough!
Or maybe you’re moving a family into a new home, and you want to start renovating as soon as possible for seasonal reasons. In these cases, you might try to negotiate a shorter settlement period with the seller. For example, if you want to move in before Christmas – a slow time for renovations – this means you’ll be able to make changes before peak renovation season. You might also get a better deal from your builders, who appreciate the extra work in quiet times. Plus, you won’t have to put up the stress of Christmas, on top of adding in another bathroom, bedroom, or what-have-you.
Additionally, a shorter settlement period means there’s less time for anything to go wrong with the property. The seller is, of course, responsible for the property until the settlement period is over. But any hiccups are an unwanted nuisance, no matter who’s paying for them. Decreasing the settlement period will decrease the risk of this happening.
Why do I need a longer settlement period?
Because you’re smart, and you understand that all good things take time. That’s not to say that a shorter settlement period is a bad decision – but if you can, leave around 42 days for everyone to get organised.
- You’ll be able to save up more money, which will come in handy if this is your first home. If you’re used to paying low levels of rent, or living rent free with mum and dad, then you’ll find the extra cash to be a nice, cushy buffer in times of need. Or you can run amok in Bunning’s. It’s up to you.
- You’ll get a better grasp of your future outgoings, including rates, stamp duty and council fees.
- If you haven’t gotten pre-approved for a home loan, you’ll need extra time for your lender to issue all the paperwork, and get the finance sorted.
- If you can’t settle in time, you can be liable for extra costs for holding things up. Sometimes settlements can run a couple of days over without too much issue. If you’re really dragging your feet, you could see yourself opening a stern Notice to Complete letter. And when I say stern, I mean expensive. You’ll be $500 or more out of pocket. Additionally, you’ll have to pay interest. If you can’t get organised within 14 days, you could risk losing your deposit, not to mention your new home!
Want the best of both worlds? Given the penalties for going over the settlement date, it’s best to get a longer settlement period written into the contract. Then, if you really want to, organise a verbal agreement for a shorter settlement period if both you and the seller are ready. That way, everybody wins.