What is a Mortgage Broker?

A person or company who deals with multiple banks on your behalf.

Why not just go to a bank? You can, but they only represent their products that may not best fit your needs and will not tell you about better deals with other banks. A broker will generally have access to hundreds of products from over 20 lenders. This gives you more options and potentially saves thousands of dollars.

Key Advantages of a broker:

• Existing relationships with banks
• Knowledge of various products to assist in finding the best loan for you.
• A single point of contact who represents you and deals with the banks on your behalf.
• They only get paid if your loan is successful, incentivising them to perform and make you happy.
• Heavily regulated to ensure your best interests come first.
• Bankers generally move on to other banks or with promotions, whereas brokers tend to maintain longer-term roles focused on building relationships.

Do I need to pay a broker? Typically, no.

How do they get paid? The banks pay them with one upfront commission and a smaller trail commission over the life of the loan. This is paid as an incentive because they brought business to the bank.

The trail commission is paid for retaining your loan, so the broker is incentivised to provide continued good service.

Does their payment impact my price? No, brokers have access to the same base rates and in fact have access to pricing reviews for discounts with most lenders, brokers also have a legislative duty BID “Best interest duty” which requires a broker to always act in the best interest of a client.

Are they licensed? Yes, they usually operate as a credit representative under an aggregator who holds the credit license or may hold their own credit licence.

Does this help protect me? Yes, you cannot be an authorised credit representative if you have been convicted of a crime or serious fraud within the last 10 years. They must also be qualified by doing the following:

• Have at least a Certificate IV in Financial Services (Finance/Mortgage Broking)
• Undertake 20 hours of continuing professional development each year.

When should I hire a mortgage broker? As soon as you’re ready to look at property. The broker will be able to determine how much you can borrow without submitting a loan to the banks, allowing you to understand your budget and what you can spend. They can also provide initial advice if you’re not ready yet.

If you believe you’re ready, a broker can lodge a pre-approval so you can enter the market with confidence, this is generally valid for up to 90 days.

It’s very important that you understand your financial position before making any type of offer on a property.

What documentation do I need to apply for a loan?

• Proof of identity (Combination of Passport/driver’s license/birth certificate/Medicare)

• Proof of income – Share details of your employer, two recent consecutive payslips, and details of your previous employer if you’ve been in your current job for less than one year.

• Proof of expenses – Lenders will typically use your bank statement to determine how much money you must put towards your loan repayment each month.

• Asset List – It allows lenders to see your wealth and may assist in obtaining a mortgage as you can potentially use these assets if required.

• Liability List – It’s very important that you’re honest with this, make sure you truly declare any outstanding debts to ensure you can afford your repayments. This includes things like car loans and Afterpay.

Can I find out what I can borrow without it appearing on my credit history?

Yes, a broker will typically conduct a serviceability check to determine roughly what you would be eligible for. This follows all the criteria that the banks use, without the banks being informed.

You would typically use this method for an untitled lot that is over 3 months away from settling. It will give you the confidence to place an offer without formally approaching a bank and having your conditional approval expire.

NOTE: You can also use an online loan calculator, one is available at the bottom of this article.

How do they calculate how much I can borrow?

They use a Serviceability Calculator.

What is a ‘Serviceability Calculator’? It is a tool used by the banks to make sure you can afford to repay the loan each month.

How does it work? They take your monthly income and subtract your monthly expenses. Every bank is different, however most will build in a buffer, example:

The current interest rate is 6%, they will calculate it at 9% to be safe (they added a 3% buffer). They will then add your expenses and subtract your income, if you have enough money to cover your repayments and expenses, you qualify.

Why add a buffer? To be safe and cover any future interest rate rises or any unforeseen changes in your expenses/earning capacity.

Do all banks need to include this? Yes, a minimum of 3% must be added. This is set by a government authority called ‘APRA’ (Australian Prudential Regulation Authority)

What is conditional approval (pre-approval)?

You are approved for the agreed borrowing amount, but not guaranteed to obtain the loan. This gives you the confidence to place an offer on a titled lot or one that will settle within three months.

How long does it last? Generally, up to 90 days (3 months)

Why isn’t it guaranteed? The bank will still need to see the property contract and may still need to verify your financial position or perform other necessary checks such as a valuation on the property.

How long does it take to receive conditional approval? The length of time it takes to get conditional approval depends on your individual circumstances. In some cases, it takes a few hours. In other cases, it may take a few weeks.

What are the steps when applying for a loan?

1. Engage a mortgage broker or bank.
2. Discuss your goals and objectives (what you’d like to buy and/or borrow)
3. You confirm which finance product is right for you to the mortgage broker or lending specialist at the bank.
4. Provide the required documentation (as noted earlier).
5. Submit your loan application to the broker or bank (they will walk you through this)
6. Your broker or bank lending specialist submits the loan application along with your supporting documents to the bank.
7. Conditional approval is received.
8. Place offer on desired property.
9. All parties sign property contract.
10. Submit contract to lender.
11. Lender conducts valuation on property.
12. Valuation amount is satisfactory (what you paid and what the bank values the property at are the same or similar).
13. Receive unconditional approval.

What does ‘Unconditional Approval’ mean?

The bank finds you eligible for a loan and have no further conditions to satisfy.

• • The bank will then send a contract for you to sign agreeing to the loan. Your broker will present this to you.

In this article, we will be covering the main steps, processes and elements when it comes to building a new home, while also answering some important questions when it comes to what you’re entitled to and how it all works.

Firstly, what is a ‘residential build’?

A residential build is typically a single title home that is constructed on a vacant piece of land. This is  typically in newer areas where suitable land is widely available (Greenfield areas), however it can also be in inner-city areas where you choose to knock down and rebuild a dwelling.

What are the typical steps when looking for a new home?

 Note: To start, either you own a block of land or you are currently looking for a suitable block of land.

1. Find the home builder and design that suits you

There are many display villages in newer areas, these are designed to showcase new homes that are suitable for majority of the vacant land sizes on sale. These display villages are the perfect place to look at what homes and designs will suit your needs as an individual or family.

Each home on display will have a sales representative who works there between the advertised hours. The sales representative is expected to  have the knowledge and expertise to answer any of your questions regarding the build or the process. Some building companies have slightly different processes to others, however the majority are quite similar. 

2. Check your finances

Either your preferred mortgage broker, bank or the builders referred broker will need to begin the process of confirming your ability to borrow money (if required). Before you commit to anything, it is best to make sure you will be in a position to obtain finance, even if your land doesn’t title for some time.

3. Home Proposal

Once you’ve chosen your preferred design and building company, you will be presented with a sales estimate by the consultant with any options you’ve selected for your new home. A siting will usually also be presented in this meeting, displaying how the home sits on the land.

In this meeting, if you are happy with what is presented, the next step will be to pay an initial deposit. This will secure your site start date and keep things moving along.

Checklist for your home proposal meeting:

• Initial Deposit
• Provide a copy of the land contract
• Provide finance pre-qualification
• Developer guidelines (if buying in a new project)
• Relevant land documentation
• Read and sign off any required documents

4. Colour Selections

Once you’ve indicated that you’d like to proceed, in most cases you’ll have a colour selection appointment. This appointment allows you to select any upgrades on offer, such as a larger stove, different flooring and more.

5. Sale Completion Appointment

This appointment will go into the finer details of your home and confirm everything including your sales quote. At this stage, you also have the opportunity to ask the sales consultant any other questions that may come to mind since meeting with them last.

Checklist for your Sale Completion meeting:

• Sign off on your house plans including siting on your block
• Sign off on your house specific options including colours, electrical and facade
• Pay the second installment fee (amounts differ between builders)

6. Pre-Contract Meeting

You will usually have one final meeting prior to your contracts being issued. This meeting will cover what is in the contract, and allow you to make any final requests or ask any questions.

You can expect to receive the following documentation in this meeting:

• Blank/Draft Master Builders Association Victoria Contract
• Special Conditions

7. Contract appointment

At your Contract Appointment you will be presented with your tender document and a full set of your house plans including siting on your block. A further deposit payment is usually payable upon contract signing or just after. This totals 5% of the contract price.

8. You are ready to start building

When building a new home, the cost of your house will generally be paid in 6 stages. This makes paying for the home more manageable and allows the bank to check that the work has been done prior to releasing more funds, protecting you and the banks interest. 

While the percentage of a contract can change to suit lending policies, the below percentage amounts can be considered reasonably standard and within HIA or MBA (Master Builders Victoria) building guidelines.

10% payment at completion of Slab Stage

This is where your slab is laid to act as the foundation of your construction. The type of slab that is laid will depend on the class of site you are building upon. The most common form of slab is a concrete slab that is laid prior to any walls or roofing being completed.

Upon completion of the slab, the builder will inform the owner, who is required to pass on the invoice to it’s lender/broker. The bank will then organise an independent inspection to ensure the quality of work is to its satisfaction. Once approved, the invoice will be paid and the builder will proceed on to frame stage.

15% Payment at completion of Frame Stage

Once the frame of your house is completed, this will be inspected by a surveyor (like the slab) and approved if satisfactory. Most frame types in Victoria will be pine timber frames. Other states could consist mainly of double brick or steel.  

35% payment at completion of Lock up stage

External wall cladding and roof covering is fixed, the flooring is laid and external doors and external windows are fixed (even if those doors or windows are only temporary).

At this stage, the outside appearance of the house will look mostly complete (excluding landscaping/driveway and fencing). It’s at this stage that the house can be locked up to improve security from material theft which can occur.

25% payment at completion of Fixing stage

At this stage, all internal cladding, architraves, skirting, doors, built-in shelves, baths, basins, troughs, sinks, cabinets and cupboards are fitted and fixed into position.

Generally, you are about 6-8 weeks from handover at this point. This will depend on the time of year and position of your builder. It may also vary depending on the type, size and complexity of your new build.

Final 10% Payable at Completion/Handover

Practical completion 1 (PC1):

This stage allows you to visit the home with your supervisor and inspect the quality of workmanship. Normally you will go from room to room and highlight areas of dissatisfaction to correct. A good supervisor will highlight errors themselves to assist you in the process, or you can bring an independant building inspector along for your own peace of mind.  

Practical Completion 2 (PC2):

This viewing is to tick off the errors highlighted in PC 1. Once all errors have been rectified and given your approval,  you are all but ready to proceed to you completion and handover to take full ownership and occupy the property.

This is your final stage before taking ownership of your new property. You can view the items required to satisfy this stage in the below link.

https://www.consumer.vic.gov.au/housing/building-and-renovating/checklists/when-building-work-is-complete

What is the deposit process when building?

Initial $1,000 Deposit (can range from $888 – $3,000)

This will typically be refundable (not always) and lock in the current promotion and pricing.

NOTE: Some builders opt for a second progress payment of around the same value once you agree to the tender. 

Unconditional deposit: 5%

Builders will generally charge a non-refundable deposit amount of 5% of the contract price. This payment will allow them to pay for services required to achieve a successful building permit on the new home and start construction. Services will include engineering reports, water and plumbing reports and council/developer required documentation.  

This will get you to your site start or site cut to prepare your land for a slab to be laid.   

Important Note: For works over $20,000, 5% is the maximum deposit that can be requested by a builder.

Build Contracts

Typically, the contracts used will be supplied by HIA, forming the base agreement. The builder will then add in variations to suit your specific agreement. It is always advisable that you have your legel representative review the contract prior to signing so you fully understand the agreement.

Price Freeze/Increases – is it a fixed price forever? No.

This is why it’s important to have your legal representative review the contract or for you to ask this question directly to the builder. Builders will typically hold the price for a set time before implementing an agreed increase in price, this is to safeguard the builder against unforseen delays in site start.

Typically, a builder will hold your price (price freeze) for 12 months before implementing an additional fee to continue the agreement.

How much extra will I pay?

Builders will commonly charge an additional $1,000 – $3,000 per additional month of delay. This is a typical range, some builders may charge less or more.

The most common reason for delays are to do with new land development and land not titling when originally forecast.

How do home upgrades fit into it?

To start with, builders will typically offer you standard inclusions. These are the basics you need to move in, however they include very few luxuries. Higher end builders will have more luxury inclusions in their base specifications, however for most major builders, this is uncommon.

You will need to review the base inclusions and determine what is important to your quality of life and budget. It might be opting for a larger oven, stone benchtops or higher ceilings.

Typically you will be able to choose these upgrades initially with your sales consultant and make any final decisions at your ‘colour appointment’. During this appointment, you will be able to view all the options physically, allowing you to touch and feel the items you will include in your home.

All chosen upgrades will be added to your contract and final pricing.

How do Site Costs work?

Site costs are the works required to prepare your land for a build. The requirements and costs varies by region, individual site and costs are impacted by soil type, rock, site fall, driveway gradient and fill.

Builders are able to review developer engineering for individual lots to assess what is required upfront, however sometimes when the builder is performing the initial site cut they might encounter something unexpected like rock for example, which may incur further costs.

Are my site costs fixed? This depends on the builder and agreement. There are a few different scenarios to consider:

1. Fixed site costs and free rock removal: Meaning the costs are agreed upfront and if the builder discovers rock on your land, there is no extra charge to remove it.

2. Fixed site costs with a rock removal allowance: Meaning the site costs are fixed, however if they find rock it will only be covered up to the agreed allowance. Anything over, you will need to provide extra funds.

3. Site and rock allowance: The builder provides an allowance for both works based on your land documentation. The final costs won’t be determined until on site tests are completed.

When do I find out how much it will cost if it isn’t fixed? The builder will typically need to go on site and perform tests to determine what the actual costs will be.

Design Guidelines

All new land estates have a set of guidelines to ensure consistency and standards across the area. They include items such as exterior materials, home sizing, energy efficient requirements, colours used and more.

Your building sales consultant should be familiar with what is expected within the land estate you may be purchasing in and can assist with selecting the right homes and options to suit.

To receive your building permit, you must first have approval via the appointed Design Review Panel (DRP). Their details will be in your design guideliens provided by the land project and your builder will typically handle the application and relay any feedback to you.

Council and Permits

Once your land is titled, the builder will apply for the appropriate documents to obtain a building permit. This includes ordering engineering, developer approvals, energy rating assessments and any additional approvals required through council.

What is a Façade?

In building, your façade is the stylised street fronting design of your home. This is typically what will give your home character and is largely based on your taste along with what the Design Guidelines will allow.

Majority of builders will provide ‘base’ facades that cost no extra, while also offering upgraded facades which use different materials and are a little more structually complex.  

Available materials typically include brickwork, render or feature cladding materials like weatherboards, cedar panels or tiles. You also have the option of a wide range of roof tile profiles, colours and materials along with alternative window materials such as timber.

Warranty, Insurances & Protections

Does my builder have to provide a warranty? Yes.

The Residential Building Work Contracts and Dispute Resolution Act 2016 (‘the Act’) requires builders to provide warranties on all building work they perform. These are called statutory warranties and they must be included in all residential building contracts.  

How long is the legislated warranty? The statutory warranties last for six years from the date of practical completion in the case of a permit or notifiable work.  If the property is sold, the new owners get the benefit of the warranties until the end of the original 6 year period. 

Do builders offer longer warranties? Yes, with a number of them offering over 25 year warrranties, however it’s best to review what is covered in detail as some are purely for structure/slab and have certain conditions which need to be met outside of the mandatory period.

Is my deposit safe? Yes, Victorians are now protected with much harsher penalties for builders who fail to take out domestic building insurance prior to full deposit payment.

What does ‘Domestic Builder Insurance’ cover? Initially, it will protect your 5% deposit.

Domestic building insurance covers you if your builder:

• dies
• is insolvent
• disappears.

When is the insurance taken out?

The builder must provide you with a copy of the policy and a certificate of currency covering the property before you pay your full deposit.

If you have more questions on this or a related topic, you can speak to an expert by calling 1300 289 324 or by visiting www.buyfairproperty.com.au 

Produced by BuyFair Property Group in collaboration with Eight Homes and Openlot.com.au