What happens on home loan settlement day?

“Going once, twice, three times, sold.” Winning at auction is an extremely exciting, nerve-racking and memorable day. You’ll never forget the moment when your offer is accepted and you slap that famous sold sign over the auction board (#Adulting).

However, you’re not quite at the finish line yet – you still have settlement day to go.

What is property settlement?

Settlement is the legal process of transferring ownership from the seller to the buyer (you). It’s the very last step in the house-buying process conducted between your legal and financial representatives and the seller's representatives.

What is pre-settlement?

Settlement periods generally range from 30 to 90 days and are outlined in the contract of sale. And although this time may feel scary, it doesn’t need to be. To help you boss this period before you’re handed over the keys, here’s everything you need to know:

1. Pre settlement inspection

Remember how the house looked on auction day? Freshly painted walls, clean carpets and taps that worked? Well, you’ll want to make sure it looks and functions the same before the property is handed over to you – otherwise you’ll be responsible for the repairs.

Before settlement day, it’s imperative you inspect the property. The seller’s real estate agent will be able to take you through so you can ensure that:

• There’s been no damage to the house since auction day.
• Fittings, plumbing, electrics and gas appliances are all working.
• The property has been cleaned, bins are empty and there is no rubbish.
• The garden is well presented and no plants have been removed (unless otherwise stated in the contract of sale).

If you discover suspicious stains or that bird of paradise plant you fell in love with is gone, call your solicitor or conveyancer immediately – they’ll contact the seller’s representatives for you.

2. Insurance

During pre-settlement, it’s also important you organise home and contents insurance, you’ll want to safeguard the biggest investment of your life.

3. Enough funds in your account

Just before settlement you’ll need to ensure that you have the funds in your bank account. Your settlement agent (solicitor, conveyancer or financial lender) should also provide you with an overview of the costs you need to consider – such as settlement agent fees, funds for land transfer duty, stamp duty etc.

What happens on settlement day?

It’s the big day; the day you take possession of your new home and can pick up the keys.

On your behalf, your settlement agent will meet with the seller’s representatives to ensure all the financial t’s are crossed and i’s are dotted – you actually don’t have to do a thing.

Your lender will withdraw money from your nominated bank account and pay the seller. They’ll also register the mortgage against your new property.

Your legal guy will make sure:

• All clauses on the contract of sale are fulfilled.
• Any caveats (legal restrictions) are removed.
• All paperwork is correctly signed, dated and exchanged.
• The transfer of land and mortgage is registered with the title office in your state or territory.

Remember, although this feels unfamiliar to you, your legal and financial representatives do this all the time – they’re the experts so try not to freak out.

What can go wrong?

Hiccups and settlement delays can happen. And if you or the seller don’t have your finances and paperwork in sorted by settlement day, you could incur pricey penalty interest (penalties vary per state). The most common delays are due to:

1. Inspection problems

Leaky pipes, dodgy fixtures or even a missing door (true story!)? In these cases, settlement can’t occur until the house is back to its auction day condition. This is why the final inspection is so important.

2. Late documentation

If contracts and the Transfer of Land are not signed and returned on time, there’s going to be a delay. The solution for this one is easy; sign, date and send back all paperwork ASAP.

3. Bank issues

For settlement to occur, both parties need to have their finances in order. The seller may need to discharge their previous mortgage before the property can be transferred you – the bank needs time to do this, so if they submit the paperwork late, settlement could be delayed.

Sometimes buyers bid with an Approval In Principle or Borrowing Capacity Estimate. An AIP is not a guarantee that you will be approved for a home loan; it’s simply an indication from a lender that they may be willing to lend you a certain amount of money, subject to conditions. If you’re successful at auction with an AIP, there could be major delays while the bank approves your loan and ensures you still meet the criteria.

What happens after settlement?

You know that finish line? You’ve crossed it! You can now pick up the keys from the real estate agent (and a bottle of champagne), head straight to your new home and settle right in.