What is property settlement, and how does it work?
The process of buying a house is both exciting and arduous. It can take several months before you finally find the dream house you’ve been waiting to purchase. But you can’t hang up your boots and relax just yet. There’s a lot to organise before you finally receive the keys to your home, including settlement, which is one of the most critical stages in the home buying process.
What is meant by settlement in a property sale?
Property settlement refers to the legal process of transferring the ownership of a property from the seller to the buyer. It is the final step in a real estate transaction that happens on the settlement date outlined in the sale contract. On this date, the buyer is required to pay the full amount due for the property to the seller and pay stamp duty in their state to complete the title transfer process.
It’s important to note that different states have different regulations regarding how a property can be legally transferred to a new owner. If you’re in the market for buying a home, having a solicitor or a conveyancer by your side can help you handle the settlement process smoothly. Additionally, a broker on your team can help ensure that your loan is disbursed promptly to prevent any unnecessary delays on the settlement date.
How long does it take to complete a property settlement?
This period between the exchanging of contracts and the final transfer of ownership is also known as the settlement period. It usually lasts between 30-60 days, but the duration may vary according to your state and the terms of your sale contract.
What happens during the settlement period?
Once you’ve paid the deposit and exchanged the signed copies of the sale contract, you may think that the deal is sealed. But the legal ownership of the property doesn’t pass on to you until the settlement date when you pay the seller the remaining amount for the property.
In between these two stages, you’ll get time to conduct property searches and prepare the necessary legal documentation for the title transfer. You’ll also need to arrange the funds required for settlement by applying for a home loan and wait for it to get approved. It’s usually recommended to apply for a mortgage pre-approval before you start hunting for properties. A pre-approval gives you a basic idea of how much you may be able to spend, which helps in narrowing down your property search. Being pre-approved for a mortgage also means that you meet the lender’s eligibility criteria for a home loan, which may help speed up the final approval unless the lender doesn’t find the property suitable, or your financial situation changes for the worse.
Here’s what you need to do during the settlement period to ensure a smooth property settlement:
- Consider engaging a legal professional to act as your agent during the settlement process. Your legal representative will check whether the contractual terms are equitable, ensure it is correctly signed and dated, and even negotiate an early or late settlement date for you if needed. They will also make sure that any existing mortgage on the title is discharged and no third party has any rights over the property.
- Organise all the funds required to complete the sale. Your mortgage broker can help you lodge your home loan application in a timely manner and prevent unnecessary delays to help ensure timely disbursement of funds.
- Keep extra funds handy to pay for additional costs like stamp duty, legal and conveyancing fees, and property inspection fees. You’ll also need to buy home and contents insurance, effective from the purchase date or settlement date, as required in your state.
- Get a final pre-settlement inspection done to uncover any defects or potential issues that must be settled before the ownership is transferred to you.
What happens on settlement day?
Despite all the build-up, the proceedings on the settlement day are pretty straightforward. Your legal and financial representatives will meet the seller’s representative at a predetermined time and place on the settlement date to exchange documents. At the same time, the lender will release the balance of the purchase price to be paid to the seller and register a mortgage against the property’s title.
There’s no requirement for you to be present during the proceedings on the settlement date unless you wish to be there. Once the settlement is complete, you must pay the transfer duty and registration fees to the government, preferably on the settlement date itself, so that the conveyancer can register the property in your name.
So what’s next?
Once you’ve paid the stamp duty and the property is transferred to your name, you can start packing and get ready to enjoy your new home. However, you’ll also see your responsibilities increase. While the seller is responsible for paying the council fees and other rates until the settlement date, it’ll be your duty to make these payments once you’re registered as the owner. Additionally, your home loan repayments will begin shortly, and it’s essential to budget your expenses to make sure you can comfortably repay your mortgage.
