Updated: May 5, 2022
Like any big day, settlement on a property can be exciting or stressful or both! We explain what's involved with a property settlement, who's responsible and how to get your ducks in a row.
'Settlement' is the legal process of transferring ownership from the seller to the buyer. It’s the very last step in the house buying process conducted between the buyer and seller's legal and financial representatives.
Very few people are in a position to buy a property with cash. The vast majority pay for the property by taking out a mortgage. How does a mortgage work? The borrower puts down a cash deposit (or other form of security) and the lender provides the balance of funds for the property purchase. The borrower pays back the orginal loan plus interest over time.
This is likely the biggest purchase of your life so you will be motivated to ensure that everything runs smoothly. If you are getting a loan to purchase the property, your bank will be the gatekeeper for the settlement process.
Among the many items on your to-do list will be ensuring that you have sufficient money to pay for the property and other associated costs on settlement day. Ideally, obtaining a loan pre-approval before you make any offers on properties is a good way to know exactly how much you can afford to borrow.
If you don't already have a loan pre-approval in place, it will be important to apply for a loan without delay. As your broker, we work quickly, but banks and other lenders can take multiple weeks to process loan applications.
The benefit of working through a broker is that we make it our job to keep your loan application and settlement process moving smoothly. We bring any requirements to your attention quickly and make sure that the lender has everything they need.
One of our favourite jobs is delivering loan settlement gifts to our clients! Shown here, Claudia, whose new home is in Mosman.
Timeline for property settlement
The date of settlement will be outlined in the sales contract. The 'settlement period' is the time between signing the sale contract and its completion. Generally speaking, settlement periods range from 30 to 90 days, or sometimes longer, depending on the timeframe agreed between the buyer and seller.
On the day of settlement, the buyer's and seller's representatives will meet with the buyer's lender to sign and exchange the final documents of the sale. Settlement is a legal process, so you will want to engage a solicitor or conveyancer to ensure that your interests are represented and that everything is handled correctly.
If you don't have a solicitor or conveyancer, we can recommend numerous professionals from our trusted network.
What happens in the weeks leading up to settlement?
The buyer's lender will be working on the loan documents. As your broker, our aim is to have this documentation completed well in advance of settlement.
Meanwhile, the buyer's solicitor or conveyancer will be running multiple checks on the property. Their first task is to analyse the contract of sale. For example, they will make sure that there's enough time between the approval date of the mortgage and the proposed date of settlement.
Additionally, they will work through the contract clauses to ensure that each party is meeting their obligations. They will also conduct a background check on the property to look for any third party or person who has rights over the property (caveats).
Helping first home buyers achieve their property ownership dreams is a highlight of our mission.
Buyer preparations for settlement day
Before settlement, the buyer will want to conduct a final inspection of the property to check that everything is in good order and that any clauses (eg. inclusions or exclusions) have been honoured.
The buyer should contact the seller's real estate agent to arrange this inspection. It usually occurs the day before or on the morning of settlement.
As the buyer, you should check that:
The property is in the same condition as it was sold
Items included in the sale have been left at the property
The property is vacant (if this is a requirement under your contract)
All special conditions in the contract or items that were negotiated to be fixed as part of your building and pest Inspection have been finalised (if any)
All appliances and fittings, including plumbing and electrics are working
The property has been cleaned and rubbish removed
The garden is well presented and no plants have been removed (unless otherwise stated in the contract of sale)
Locks, keys and automatic garage door controls are supplied and working
If the property is new, you should conduct a final inspection to see that the property is completed and handed over, as promised. Any defects should be documented.
This is also the time to take out building and contents insurance, which should ideally take effect from the purchase date.
The most important item on your to-do list is to make sure that your finances are sorted. Remember, as well as needing funds to cover the purchase price, you will also need money to cover any government duties, Lenders Mortgage Insurance, conveyancing fees, building insurance and other costs.
Sharon (middle) delivers a settlement gift to Kerrie and Lynda who just bought another property.
On the day of settlement
On the day of settlement, your lender will:
Register a mortgage against the title of your new property
Provide the funds to purchase the new property
Your solicitor or conveyancer will check that:
Any existing mortgage on the title to the vendor is discharged
Any previous caveats over the property are removed
All clauses on the sales contract are fulfilled
The transfer of land and mortgage is registered with the title office in your state or territory
Stamp duty is paid to the relevant authority
What can go wrong?
Our job as your finance broker is to make sure that everything goes right! These are some of the situations that can delay the settlement process:
Missing documents or bank mix ups (eg. wrong names on cheques)
Late or incorrect documentation
Final inspection issues
In some states, buyers and sellers are obliged to be flexible about settlement extensions or delays. In other states, however, buyers and sellers can refuse a settlement delay. It can also be used as grounds for terminating the contract, keep the buyer's deposit, charging default interest and suing for damages.
What happens the days and weeks after settlement?
Upon settlement, the buyer's lender will debit the loan balance from the borrower's loan account. Additionally, they will send a confirmation of the loan amount and repayments.
As your broker, we follow up to ensure that your loan repayments and loan features (eg. offset or redraw facility) are set up properly and we help you plan for what comes next. For some people that's paying off their mortgage faster, saving for renovations, buying another property—or whatever comes next! We also conduct an annual review of your loans to make sure that you're always getting the best deal.
*Research for this article was sourced from NSW Fair Trading, Realestate.com.au, MeBankRealestate.com.au, MeBank and NAB. Originally posted on 14 March 2021 and updated on 5 May 2022.