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What is a home settlement and how does it work?

January 9, 2019 10:00 am by Upside

Congratulations! You’ve just bought, or are planning to buy, your first home. After months of searching for your dream property, you’re getting ready to dot the ‘i’s and cross the ‘t’s - now all you need to do is settle your property, and move into your new home.

Navigating the details of a house settlement can be an exciting yet challenging time: whether it’s signing your final contracts, figuring out how to calculate settlement, or conducting your final inspections, there’s a lot to manage.

We break down exactly what a home settlement is and how it works, so you can finally get the keys to your new home.

What is a house settlement?

Settling your home is the final step of the property sale process, where the property is legally transferred from one owner to another (in other words, when you finally take legal ownership of your home). Normally, the settlement day is set in the contract of sale, and a typical settlement period for a property is around 30 to 90 days, although it can be longer or shorter.

On settlement day, you’ll complete your property sale and pay the balance of the sale price to the owner. If you have a mortgage, your lender will pay and your mortgage will officially come into effect from that day.

Preparing for house settlement day

First things first: before you sign any contract, it’s important to find yourself a settlement agent (normally a solicitor or conveyancer) who will represent you during the settlement process. Every state has certain regulations and procedures that have to be complete before ownership of a property can be transferred, and your agent will work with you during the settlement period to make sure all the boxes are ticked, and everything goes smoothly on settlement day.

Your settlement agent can help to:

  • Check your sales contract for wording, and make sure that the settlement date is correct
  • Speak with your lender to make sure they’ll be there on settlement day to transfer funds
  • Arrange all your cheques with your lender
  • Make sure all the measurements and boundaries match the ‘Certificate of Title’
  • Notify the council of any changes in ownership
  • Sort out your paperwork, which include land transfers, stamp duty, and so on

Before settlement day, you’ll also have some things to take care of on your side, which include:

  • Arranging the final inspection of the property
  • Making sure you have enough money to cover everything aside from the property purchase, including settlement agent fees, lender’s mortgage insurance if you need it, stamp duty, and so on
  • Organising your building and contents insurance
  • Arranging for all your utilities to be connected

Settlement day: doing the final inspection of the property

On settlement day, you’ll need to contact the real estate agent and arrange for a final inspection of the property. This is your final check before handing over your documents, and is normally done on settlement day to ensure the property is in the same condition as it was when it was first sold to you.

During your final inspection, you should be armed and ready with a checklist. While you may have your own things to add, during a final inspection you should:

  • Turn all the lighting and appliances on and off to check that they work
  • Test all the heating and cooling systems, and the hot water system
  • Check the condition of everything to make sure it’s the same as when the property was sold, including windows, floor coverings, light fittings, doorways, and so on.
  • Confirm that any and all repairs or renovations have been completed, especially if there are any you negotiated during the property sale

Try and be as thorough as possible during your final inspection. If you’re not confident or want a second opinion, you can always ask a friend or family member to come with you, or hire a professional to help.

Settlement day

On the big day, your settlement agent, your lender, and the seller’s representatives will all meet to sign and exchange documents, and arrange the payment for the seller. Mortgage settlement in Australia is also done on settlement day.

Your lender will set up a mortgage for you for your new property, and provide the funds to pay for your home; meanwhile, your settlement agent will make sure all the title transfers are correctly registered, any existing mortgages are cancelled, make sure there are no outstanding debts or caveats that are held on the property, and check that everything in your sales contract has been fulfilled.

The actual settlement process is fairly quick, and it’s entirely up to you if you want to be there.

Paying stamp duty: what you need to know

  • What is stamp duty and who pays for stamp duty? Stamp duty is a tax paid on the purchase of any real estate. It’s always paid for by the buyer.
  • How much do I pay? The rate you pay on stamp duty will depend on which state you’re in, as every state has different rules and regulations, as well as on the cost of the property. There are also concessions and grants as part of the First Home Buyer scheme, although these vary per state as well.
  • Do you pay stamp duty on land? Typically you do have to pay for stamp duty on land, unless you have access to a First Home Buyer grant or a similar concession.

What happens after your house settlement?

After your settlement, your lender will debit you for the amount that was paid during the settlement and your mortgage officially starts - this is called drawing on your loan. You’ll also need to pay stamp duty, and start paying for all the council rates, strata fees if you have any, and other costs.

After this, you can sit back and relax: you’ll get the keys and officially be the owner of your new home.

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