When you’re looking to buy a residential property, one option is to buy off-the-plan.
What that means is, you’ll be purchasing something that hasn’t been built yet.
It will most likely be a development involving units, either in an apartment block or possibly retirement living.
There are pros and cons, depending on your priorities.
Buying off-the-plan often involves a long wait, which means you still need somewhere to live in the meantime, but it also gives you more time to save before obtaining a loan.
It might cost less than an established property, especially if you buy-in early, but you can’t assume that.
There’s always the possibility that the development will be delayed or cancelled.
Paying a 10% deposit when you sign a contract is a typical practice.
That brings us to considerations about finance, so we spoke to mortgage broker Scott Bolton, franchisee for Aussie in Manuka.
“There’s two types of people who see me for buying off-the-plan” Scott begins.
“The first are the ones who have signed already and now need the finance arranged, and the second is those who are planning to buy.”
As a result, “this involves two very different conversations” Scott states.
The main reason for that is the first one has some important deadlines already set in place, whereas the second has no commitment yet.
It’s very preferable to see a broker, and extremely important to get legal and financial advice about the planned property, before you sign any contract to buy.
There’s also definitely less stress when there are no deadlines in place already.
However, a broker will still spring into action if you are already at the stage where you need to apply for finance.
“For that first group, I do a number of things. I work out; Do they have genuine savings? Do they have enough funds to complete? Have they applied for the First Home Owner Grant? I look at their employment and their debt levels.”
He also needs to ask when the certificate of occupancy is due to be issued, because getting the timing right means getting the strongest possible valuation.
“I will then be working with the real estate agent, the lawyer, and the developer to make sure that everything is tickety-boo (so that) there’s no extra stress as we get closer to the settlement day.”
With those that have not signed yet, “they’re usually a young couple, saving a deposit, and getting the First Home Owner Grant.”
In this situation Scott will “talk about all the variables”, because many scenarios could be on the table.
“Another thing I’ll do with that second group is refer them to get good legal and financial advice that will see them right.”
It may also help you to know there are some professionals who will see you for such advice without charging you for the first meeting.
As for scenarios, Scott says it helps him to know if the intention is to move in to start with and then rent it as an investment in, say, five years. “Knowing their goals steers me where to go.”
We also asked Scott about conditional approval of a home loan.
“That’s usually good for 90 days. So if settlement isn’t due for 12 months or something like that there’s no point” in applying yet.
However, “a broker will give you a financial health check. Am I likely to get a loan? What will the repayments be like? They can answer questions like that and help you get things in place before you sign a contract.”