Essential Terms to Know When Buying a House
Purchasing a house is one of the most significant financial decisions many people make in their lifetime. Whether you're a first-time buyer or a seasoned investor, understanding key terms will help you navigate the process with confidence. Here's a guide to some of the most important terms you should know:
1. Pre-Approval
Pre-approval is an initial assessment by a lender of how much money you may be eligible to borrow. It’s based on your financial situation, including income, expenses, credit history, and assets. While it’s not a guarantee of a loan, pre-approval gives you a clear idea of your budget and shows sellers that you’re a serious buyer. It’s often valid for a set period, typically 3 to 6 months.
2. Loan-to-Value Ratio (LVR)
The Loan-to-Value Ratio (LVR) is the percentage of a property's value that you borrow. For example, if you purchase a property worth $500,000 and borrow $400,000, your LVR is 80%. A lower LVR often results in better loan terms, while a higher LVR (usually above 80%) may require you to pay Lenders Mortgage Insurance (LMI) to protect the lender in case you default on your loan.
3. Stamp Duty or Property Transfer Duty
Stamp duty, also known as transfer duty, is a government tax on property transactions. The amount varies depending on the property’s value, its location, and whether you’re a first-time buyer. To check what stamp duty you are liable to pay on a purchase there is a handy calculator here
4. Unconditional
An unconditional contract is one where all conditions, such as financing approval or a satisfactory building inspection, have been met. Once a contract becomes unconditional, both the buyer and seller are legally bound to complete the sale. It’s important to fully understand the terms and ensure all due diligence is completed before agreeing to an unconditional contract.
7. Fixed vs Variable Interest Rates
When choosing a home loan, you’ll encounter fixed and variable interest rates. A fixed-rate locks in your interest rate for a set period, offering certainty in repayments. A variable rate fluctuates with market conditions, which can mean lower rates when the market drops but higher rates when it rises. Some loans also offer a combination of both, known as a split loan.
8. Conveyancing
Conveyancing refers to the legal process of transferring property ownership from the seller to the buyer. This includes preparing and reviewing contracts, conducting property searches, and ensuring all conditions of the sale are met. You can hire a solicitor or licensed conveyancer to handle this process on your behalf.
9. Building Inspection
A building inspection involves hiring professionals to check the property for structural issues and defects before you buy. These inspections can reveal hidden problems that you may be unable to identify from an inspection and can potentially save you from costly repairs down the track.
10. Settlement
Settlement is the final stage of the property purchase process, where the ownership of the property is legally transferred to the buyer. On the settlement date, the buyer pays the remaining purchase price, and the seller hands over the property title. Your lender and conveyancer will typically coordinate this process.
Why These Terms Matter
Understanding these terms can help you:
- Plan your finances effectively.
- Avoid unexpected costs.
- Negotiate confidently with sellers and lenders.
- Take advantage of grants and concessions that you may be eligible for.
Buying a house is an exciting journey, and knowledge is power. Familiarise yourself with these terms, and you’ll be well-prepared to make informed decisions every step of the way. If you would like guidance on buying in Southern Tasmania the MIX Property Group team are here to help. Contact us today to see how we can help you purchase your next or first home.