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You’re a few weeks away from owning a new home. The contract of sale has been signed. The hard work of finding a property is behind you. Now, all that lies between you and the keys to your new home is the settlement process – a time when your legal and financial representatives get busy preparing paperwork to transfer the ownership of the property from seller to buyer. What could possibly go wrong?
You want settlement to run as smoothly as possible because complications can cause costly delays. Depending on your State or Territory (legislation varies), buyers can be charged penalty interest for each day they delay settlement.
Don’t want to have this happen to you? Then you should avoid the 6 biggest mistakes borrowers make during settlement.
1. Invalid contracts
It sounds crazy but signing on top of the ‘sign here’ message flag sticker rather than on the actual contract is more common than you think.
‘Sign here’ flags on contracts are used to help borrowers by ensuring they don’t miss any of the crucial pages in a contract, but sometimes these flags get in the way. It can happen, with stress levels running high and a stack of documents to sign, it’s easy to miss the fact you haven’t properly signed the document. Unfortunately, if even the a fraction of your signature ends up on the sticker instead of the physical contract, your signature may be considered invalid.
Invalid contracts occur because of simple errors like this. That’s why you need to sign, date and indicate your name or initials next to your signature at every place where there is an arrow pointing toward you, NOT on top of the ‘sign here’ flag sticker!
2. Your signature witness
Always remember, a witness to a signature must be someone not a party to the loan. Commonly a husband and wife or multiple people are borrowers under the same loan, which can lead to the simple mistake of witnessing each other’s signature. It’s also a bad idea to have children as witnesses unless they are over the age of 18.
The requirement for having someone ‘witness’ the home buyer’s signature ensures that there is no discrepancy in what was initially agreed orally or in writing between home buyer and seller, particularly in situations where home buyer and seller are not present at settlement.
3. Failing to complete a discharge form when refinancing
When home buyers refinance their home loan, the home lender may require home buyers to settle the original home loan and any other outstanding debts owed to the lender (including fees and charges).
It’s critical to lodge this form if necessary, to ensure there are no delays in the settlement process, as some lenders can take up to 30 days to finalise a discharge.
If borrowers don’t complete a discharge form when refinancing, home buyers can end up with more home loan debt than they bargained for.
4. Reviewing your insurance policy
Once you sign on the dotted line, you are responsible for the purchased property. One of the first steps you need to take before settlement is taking out building and contents insurance.
You need to go over your settlement documents with a fine tooth comb, making sure of the basics, like avoiding spelling errors in your name, the security address, mortgagee details and the minimum amount stated on the insurance documents.
Also, don’t make the error of thinking that a cover note is sufficient. Your lender will want to see evidence that you’ve paid the insurance in full.
5. A lack of funds
You need to be aware of settlement costs, because they can quickly stack up. The balance of the sale price, stamp duty, government and bank fees plus any changes in council rates, water and utilities are a few things to keep front of mind. You want to avoid any miscalculation of the costs associated with settlement to be certain you have the available funds required.
Often times borrowers have the necessary funds stored away in a bank account but fail to organise themselves for scheduled bill payments. Once they get to settlement day, they suddenly find themselves with insufficient funds in their bank accounts. Make sure you aware of all the costs associated with settlement and that you can meet your financial commitments to avoid delays and penalties!
6. Failing to return crucial documents
Yes there are a stack of documents to finalise on settlement of your loan. No you cannot slip up here. Late documents can have a domino effect on the entire process. Understand your commitments and the timeframes to meet them. Store your tracking numbers for any express post documents.
Fortunately, when you work with our home loan experts, you have someone in your corner every step of the way. We supply you a useful checklist for you to meet your commitments ensuring all your documents are signed (validly), sealed and delivered.